Our Investment Outlook for December 2025

Beyond the noise: turning market uncertainty into strategic opportunity

As headlines swirl with speculation about an equity market bubble and potential steep declines, investor anxiety is understandably on the rise. The media frenzy has amplified concerns, with commentators warning of overvalued stocks and unsustainable momentum from equity markets over the last eight months, during the recovery from April’s Trump tariff turmoil.

Adding fuel to the fire are cautionary remarks from influential figures such as Jamie Dimon, CEO and Chairman of JPMorgan Chase, and Andrew Bailey, Governor of the Bank of England. Both have flagged the current AI-driven enthusiasm and asset valuations as potential precursors to a broader market correction.

So, how apprehensive should we be?

Investor scepticism can be a good thing

While we remain vigilant and continuously assess downside risks of asset valuations, we believe the prevailing scepticism is actually a healthy sign. Historically, true market crises have often emerged during periods of unchecked optimism, as seen most clearly in 2006-2007. An International Monetary Fund report from 2006 wrongly painted a picture of blue skies ahead, while their most recent focused in on several potential storms. Today, in comparison with the pre-Great Financial Crisis or Tech Bubble years, doubt and caution are widespread, suggesting that investors are more alert to potential pitfalls. 

This collective wariness can act as a stabilising force, tempering excessive risk-taking and limiting speculative behaviour. We would also argue that many investors have been wrongly positioned for the recent market gains and are hoping for a short-term dip in prices enabling investment in more growth opportunities. 

Checking for financial and economic hazards and threats

From a macroeconomic perspective, we do not currently see any glaring systemic vulnerabilities. Financial and economic conditions appear broadly supportive, and we anticipate that 2026 will be a satisfactory year on both fronts. Growth remains steady, inflation should moderate (though probably not to levels seen in the last decade), and central banks have shifted toward policies that support growth, such as keeping interest rates low and making it easier to borrow. These factors provide a solid foundation for continued market resilience.

That said, there are obviously some significant risks for us to be concerned about, such as government bond markets. High debt levels, coupled with expectations of further debt issuance and pervasive political incompetence, have created a challenging environment. The fiscal landscape is strained, and investor confidence in government debt is understandably being tested. We acknowledge these threats and have taken steps to mitigate their impact on our portfolio - explained in more detail in our accompanying investment outlook article.

However, there are reasons to believe that bond market pressures may ease. Inflation is slowing down, and central banks – including the US Federal Reserve (Fed) – are hinting at further interest rate cuts. It is also possible that the Fed will start purchasing assets like government bonds again; this could inject liquidity into the system and help to boost fixed income markets.

Current high equity market valuations – are they sustainable?

If there is a pressing issue in the immediate term, it may lie in equity market valuations. Current valuations are high – in fact some commentators have argued that they are reaching levels last seen during the Tech Bubble of 1999-2000. The surge in enthusiasm around AI, combined with a sense of investor complacency, has pushed prices higher across many sectors. This raises questions about sustainability and whether markets have moved too far, too fast.

Yet it's important to recognise that valuation, while a useful long-term indicator, is a poor short-term timing tool. Elevated valuations do not necessarily imply imminent declines. In fact, robust corporate earnings growth and wide profit margins continue to support current price levels. Forecasts for 2026 suggest that this trend will persist, providing a cushion against potential volatility.

Taking steps to weather the storm

In response to these positive and negative dynamics, we have adopted a measured approach to portfolio management. Recognising the possibility of a near-term correction, we have engaged in profit-taking and reduced exposure to some of the high-flying winners. At the same time, we have shifted our focus toward higher-quality assets and defensive sectors – those more likely to survive any market turbulence. This strategy is designed to preserve capital while maintaining flexibility so that we can capitalise on emerging opportunities.

We believe the current environment contains the ingredients for a period of consolidation or a moderate correction. However, barring a major unforeseen event, we do not anticipate a full-scale market collapse. Should volatility increase, we will be able to treat it as an opportunity rather than a threat. Our portfolios are positioned to allow us to ‘up-risk’ selectively, by potentially buying into sectors that may temporarily fall out of favour but offer long-term value. 

It’s also worth noting that 2026 is a US midterm election year, which historically brings heightened market volatility. Political uncertainty and shifting policy priorities often lead to corrections, and the year ahead could follow that historical pattern. However, we are not only aware of this, we are also prepared for it. Our investment strategy is built to withstand short-term shocks and take advantage of dislocations when they arise.

Our investment outlook for 2026

While the media narrative may be dominated by fears of bubbles and crashes, our outlook remains balanced and cautiously optimistic. We acknowledge the dangers, not least those around government debt and equity valuations, but we also see solid underlying fundamentals. By staying disciplined, focusing on quality, and remaining agile, we believe we can navigate the uncertainty ahead and emerge stronger.

The road through 2026 may be rocky, but it is not impassable. With the right tactics and a measured view of the landscape, we are confident in our ability to manage risk and seize opportunity. Volatility may be inevitable, but it need not be feared. We stand by our view that ‘volatility is the friend of an investor, not its enemy’. That mantra might well continue to be useful in the year ahead. 

We are here to help

If you would like to discuss how your own portfolio is set up to navigate this investment outlook and still meet your long-term goals, please get in touch with your usual Canaccord Wealth account executive or email: enquiries@canaccord.com

For further information on any of the terms used in this article please see our glossary of investment terms.