"Stock market boom"! Global stock markets rise by double digits for the third consecutive year

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Global stock markets achieved a third consecutive year of double-digit gains in 2025, despite uncertainties triggered by Trump’s trade policies and concerns over an artificial intelligence sector bubble. The MSCI Global Index rose more than 20% this year, outperforming most analysts’ expectations.

After suffering a steep selloff at the start of the year, U.S. stocks staged a strong rebound, with the S&P 500 posting a nearly 16.5% annual gain. DeepSeek unveiled its large language model early in the year, shocking Silicon Valley and causing tech stocks to plunge. In April, Trump announced sweeping tariff measures, sparking further selling in stocks, bonds, and the dollar. But robust corporate earnings, expectations for Fed rate cuts, and stronger-than-expected economic growth quickly drew investors back to the market.

Despite strong performance in U.S. stocks, markets in China, Japan, the UK, and Germany all outperformed the S&P 500 this year, and emerging market stock indices also beat U.S. equities. After volatility in U.S. stocks at the start of the year, investors sought more diversified allocations.

However, market valuations have far exceeded historical averages, and analysts warn that the rally led by tech giants may be difficult to sustain. The S&P 500’s Shiller CAPE ratio is close to 40x, second only to the levels seen before the dot-com bubble burst in the early 2000s.

Economic Resilience Underpins Market Performance

Strong earnings resilience by U.S. companies, combined with a clear prospect of Fed rate cuts, have become the core supports for the market, driving large-scale capital flows back into equities and reinforcing long-term bets on AI potential. Meanwhile, better-than-expected U.S. economic growth figures further eased market anxiety and boosted risk appetite.

Venu Krishna, Barclays Head of U.S. Equity Strategy, commented: "It’s been an extremely strong year, stronger than we expected. Despite policy uncertainty—including tariffs—the U.S. economy and stock market overall showed great resilience."

Kasper Elmgreen, CIO of Equities and Fixed Income at Nordea Asset Management, said: "If you had told me at the start of the year that there would be this kind of global trade restructuring, I wouldn’t have predicted such a strong performance for the stock market. But what we see is a resilient economy and very strong corporate fundamentals."

High Valuations Spur Concern

Following such a strong rally, market sentiment is turning more cautious. Some investors and analysts are warning whether the rally can be sustained, noting the current bull market is marked by significant structural concentration and deviations in valuations, with gains largely driven by a handful of tech giants in Silicon Valley, pushing overall market valuations far above long-term historical averages, making index returns increasingly reliant on the continuous performance of leading stocks.

Simon Adler, Head of Value Equities at Schroders, noted: "When the market is this strong, there’s a risk of complacency. As we head into 2026, some sectors of the market look extremely well-valued. The risk of a sharp correction has risen significantly."

He pointed out that the S&P 500’s Shiller CAPE ratio is close to 40x by the end of 2025, extremely high by historical standards. The only time the S&P 500 saw a higher ratio was before the dot-com bubble burst in the early 2000s. Starting from these valuation levels, the market has never delivered returns above inflation for investors.

Elyas Galou, Bank of America Investment Strategist, stated: "It is very rare for the S&P 500 to deliver double-digit returns for four consecutive years. It could happen, but the bar is very high. We are starting from very high valuations."

Heightened Concentration Risk Increases Market Fragility

Altaf Kassam, Head of European Investment Strategy and Research at State Street Global Advisors, cautioned that the current rally driven by a few stocks is accumulating structural risks. He noted that the so-called U.S. technology “Magnificent Seven” now account for about a quarter of the MSCI World Developed Markets Index, and this extreme weighting concentration has tightly bound global index movements to the performance of a handful of giants, amplifying overall market fragility. He said:

"This is a rally that’s somewhat unsettling. Anytime you see companies with very similar business models clustered together, it’s worrisome…this makes the market more fragile."

The intensifying trend toward market concentration is prompting closer scrutiny of the surge in AI sector mergers and acquisitions. This trend is creating a complex and interdependent web of financial relationships. A typical example: OpenAI, the developer behind ChatGPT, not only holds stakes in some key infrastructure suppliers but itself has received massive investment from other industry participants. These intertwining capital relationships are reshaping the industry ecosystem and could magnify systemic risk.

Kassam said: "It’s like a game of Jenga. If you pull out a critical block, the whole structure could collapse."

Risk Warning and DisclaimerMarkets carry risks, and investments should be made cautiously. This article does not constitute personal investment advice nor does it take into account any individual user's special investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein suit their specific circumstances. Your investments are your own responsibility. ```