Market Overview
Equity markets around the world rose modestly in December, as investors adopted a cautious posture amid ambivalence about artificial intelligence (AI) and uncertainty about the global outlook for interest rates.
The month saw a slew of decisions by key central banks that shifted the global monetary landscape and influenced risk sentiment. All eyes were on the U.S., where the Federal Reserve (Fed), which has been seeking to balance the competing pressures of a cooling labour market and stubbornly high domestic inflation, lowered interest rates for a third consecutive policy meeting with a 25-basis point (bp) reduction in early December. The Fed also hinted that it would likely pause its current rate-cutting campaign as it collects more data to assess the direction of the labour market and price growth. Despite the likelihood that borrowing costs would remain at their current level for the foreseeable future, investors were encouraged by the Fed’s pivot to a less hawkish interest rate-policy stance, which in turn, sparked a rally across global stock markets. In the wake of the Fed’s latest action, Fed-funds futures traders were pricing in a 71% chance that the U.S. central bank would lower rates at least twice next year, according to the CME’s FedWatch tool. In subsequent weeks, stock markets around the world swung between gains and losses with the release of delayed U.S. data on inflation and the labour market that did not provide much clarity about the direction of the U.S. economy heading into 2026. The yield on the benchmark 10-year U.S. Treasury note ended the month at 4.17%, 15 bps higher than a month earlier.
Across the Atlantic, the European Central Bank (ECB) held interest rates steady for a fourth consecutive policy meeting in December. Bolstered by exporters navigating U.S. tariffs more successfully than anticipated and by a rise in domestic spending, the ECB also raised its forecasts for economic growth and inflation in the eurozone, which suggested that the ECB’s rate-cutting cycle had reached an end. In the U.K., the Bank of England (BOE) lowered interest rates to their lowest level in nearly three years with a 25-bp cut but signaled that the pace of additional reductions might slow even further despite amid stagnant economic growth, a softening labour market, and recent data suggesting that the outlook for domestic inflation was improving. A handful of other prominent central banks in Europe followed the ECB’s lead by holding their benchmark rates steady in the month, including Switzerland’s Swiss National Bank, which is expected to keep rates at 0% throughout 2026; Sweden’s Riksbank, which is expected to begin raising rates in late 2026 as the country’s economy begins to improve and year-over-year inflation hovers near the central bank’s 2% target; and Norway’s Norges Bank, which reiterated its plan to continue easing its monetary policy gradually over the next few years despite persistent inflationary pressure. The yield on the 10-year German Bund, Europe’s principal safe-haven asset ended December at 2.86%, 17 bps higher than a month earlier.
Meanwhile, in Japan, the Bank of Japan (BOJ) raised its main interest rate to its high level in 30 years with a 25-bp hike at its policy meeting in late December, its first increase in 11 months. The BOJ also signaled that it was prepared to raise rates further, as inflation remained above the Japanese central bank’s 2% target. Elsewhere in Asia, China’s central bank left its benchmark lending rates unchanged for a seventh consecutive month in December despite the country’s mounting economic woes.
The month also saw a resumption of the AI trade, although in fits and starts, amid lingering concerns that the lavish spending by technology companies to build-out AI infrastructure, which has become increasingly reliant on issuing a massive amount of debt, may not lead to as much profit as hoped and could increase the risk of an AI bubble. Worries were also growing that the stocks that had soared due to the AI boom had become overvalued. Despite these reservations, the top five contributors to the MSCI All Country World index’s performance in December were all technology stocks heavily leveraged to AI and accounted for 52% of the index’s overall return. Two members of the so-called “Magnificent Seven” group of mega-cap U.S. Big Tech stocks were among these top five contributors and accounted for 30% of the index’s total return.
The conclusion of the latest earnings season painted a mixed picture on how company profits have held up amid a challenging macro environment. In the U.S., 82% of the companies in the S&P 500 Index topped consensus estimates, outperforming the long-term average of 67%. The third-quarter earnings growth rate increased 13.5% from a year earlier. In Europe, 48% of the companies in the STOXX 600 Index posted better-than-expected earnings, below the 54% that do so in a typical quarter. The third-quarter earnings growth rate increased 3.6% from a year earlier. In Japan, 61% of the companies in the TOPIX posted positive earnings surprises, surpassing the 53% beat rate over the past four quarters. The third-quarter earnings growth rate decreased 35.3% from a year earlier. In Hong Kong, 48% of the companies in the Hang Seng Index registered better-than-expected earnings, lagging the 57% beat rate over the past four quarters. The third-quarter earnings growth rate decreased 6.10% from a year earlier.
Against this backdrop, equity markets in the developed and developing worlds rose in December, with the latter outperforming the former. In the U.S., the S&P 500 inched upward but underperformed, as large investors engaged in profit-taking in the closing weeks of the month, closing out a year that saw the index record its third consecutive year of double-digit gains. In Europe, the STOXX 600 rose and outperformed, as the eurozone’s improving economic outlook and the attractive valuations of the Continent’s stocks boosted risk appetites. In Japan, the TOPIX lagged the broader global index but still ended the year at an all-time high, as investors were hopeful that the new government’s budget for the next fiscal year will seek to balance expansionary fiscal policy and debt management. In China, the Hong Kong-based Hang Seng Index slipped, as the combination of weak economic data released during the month and news that the country’s central bank was standing pat on its benchmark lending rate curbed risk appetites.
Materials was the best-performing sector in December, as the stock prices of gold miners gained in sympathy with the soaring price of the precious metal, which recorded its largest annual gain in over 40 years amid expectations of additional Fed rate cuts and heightened global economic uncertainty. Utilities was the worst-performing sector, as shares of U.S. power producers came under selling pressure from profit-taking after strong recent stock price appreciation stemming from investors’ view of them as derivative AI plays.
Outlook
December 2025 completes a year that was filled with great uncertainty – in terms of taming of inflation, prospects for achieving an economic soft-landing, elevated policy uncertainty, geopolitical conflict, and transformative technological innovation. It’s worth underscoring that not only did broad market averages enjoy exceptionally strong performance in 2025 amid the uncertainty, but traditionally defensive Infrastructure securities held their own against the growthier equity benchmarks with similarly punchy performance.
As we look out on 2026, we expect markets will continue to wrestle with great uncertainty, and investment performance will be determined by the function of starting valuation… and the trajectory of earnings revisions.
Here we expect Infrastructure to continue to exhibit critical defensive qualities and remain an invaluable diversification component for investment portfolios given the essential nature and real asset characteristics of the asset class. We believe there is a strong case to be made that much of the listed Infrastructure securities space offers superior valuation support, solid earnings growth and prospects for upward revision, and greater gearing to the trend towards lower interest rates.
From a sectoral standpoint, we see a number of multi-year critical infrastructure investment trends likely to continue largely undeterred by recent tariff and trade uncertainty. Electrification and the growing demand for power to accommodate the Artificial Intelligence (AI) / Data Centre development surge serves as an example, in our view. Utilities were a key positive contributor to performance during 2025 and we expect they will remain so in 2026. We maintain a favourable sector outlook for Utilities and foresee scope for continued upward earnings revision, particularly in the U.S. where the demand for power is materialising at a faster pace. Outside the U.S., while the trend may be lagging and destined to evolve more subtly, we also see opportunity in considerably more compelling valuations.
Outside of the utilities sector, we believe U.S. midstream energy, namely oil & gas storage and transportation, continues to offer a compelling combination of attractive valuation and improved capital allocation discipline. And while increased uncertainty regarding the pace of global economic activity now weighs more heavily on energy prices and the sector earnings outlook generally, the vast majority of the cash flows associated with the portfolio’s midstream holdings are fee-based and enjoy strong support from take-or-pay contracts and spread differentials at key access points.
Elsewhere within the portfolio, we see an abundance of opportunities stemming from large-scale investment in transportation infrastructure, information technology and energy development & security, leading to increased demand for materials, capital goods and industrial equipment.
We believe the portfolio remains well-positioned to take advantage of these opportunities in real asset infrastructure businesses as well as key enablers, including materials, services, and technologies, that will both facilitate and benefit from increased investment in infrastructure.
The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated.
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Allocations and security selection are subject to change. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. Mention of these securities should not be considered a recommendation or solicitation to purchase or sell the securities. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions we make in the future will be profitable or equal to the investment performance of securities referenced herein. There is no assurance that any securities referenced herein are currently held in the portfolio or that securities sold have not been repurchased. The securities mentioned may not represent the entire portfolio.
Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries.
Securities and instruments of infrastructure companies are more susceptible to adverse economic or regulatory occurrences affecting their industries. Infrastructure companies may be subject to a variety of factors that may adversely affect their business or operations, including additional costs, competition, regulatory implications, and certain other factors.
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Published on January 19, 2026.