Welcome to December’s edition of the True Potential monthly report.
In our latest update, we explore what’s been happening across major economies, how markets are responding, and what it all could mean for investors.
Key themes at a glance:
- A resilient global backdrop: Even with US tariffs still in place and signs that labour markets are cooling, the broader global economy remains in solid shape.
- US strength continues:The US economy is still on a solid footing. The impact of tariffs has been less severe than feared, and company results have been robust.
- Europe finds support: Lower prices and fiscal stimulus should keep European growth positive too.
- Investor confidence remains high: US companies continue to impress with their resilience and innovation. While equity valuations have climbed to record highs, there are still selective opportunities.
- Our investment stance: We continue to prefer equities over bonds, with a tilt toward non‑US stocks. In fixed income, we see better value in UK gilts than in US Treasuries.
Market overview
With equity markets setting new records in December, investors remain confident. Recent US earnings results show that companies have been able to preserve their pricing power and expand their profit margins. While tariffs are still expected to have some impact on economic activity, markets appear comfortable with the current trajectory. The overall tone remains one of cautious optimism.
US outlook
The US economy continues to show impressive resilience heading into 2026. The administration’s trade policy is being positively offset by extraordinary investment in AI, the country’s unique productivity impulse and healthy corporate profits. US companies are demonstrating an ability to adapt quickly – one of the reasons investors remain confident in the country’s long‑term growth story.
European outlook
The outlook for European growth has improved and is now modestly positive. Several factors are helping counterbalance the drag from US tariffs:
- Lower energy prices
- A surplus of Chinese goods
- Reduced interest rates
- Increased government spending
With inflation at its target level, the European Central Bank’s rate-cutting cycle appears to be at an end.
Equities and valuations
Equity valuations look expensive in some areas. But there are significant variations between regions and within markets – especially in the US. Non‑US markets generally offer better value, yet US earnings strength continues to surprise sceptics. Many investors still believe in the ability of US companies to innovate and adapt
Our positioning
We remain modestly overweight in equities, with a preference for non‑US stocks. While we see opportunities, we’re also mindful that companies must continue to deliver earnings that justify today’s valuations.
Government and corporate bonds currently offer only limited value; here, UK gilts are more attractive than US Treasuries. Within alternatives, we maintain a neutral stance, given the risk of higher short‑term inflation and widening fiscal deficits. We also continue to favour an underweight position in cash.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest.
This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
Opinions, interpretations and conclusions represent the views of True Potential Investments at the date of publication and are subject to change. Forecasts are not a reliable indicator of future results.
All data sourced from Bloomberg L.P. (29/12/2025)
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