Our multi-asset investment views – December 2025
We continue to see a low risk of US recession, with the primary concern being the level of equity valuations. We are balancing our positive view on equities with diversifiers such as gold.
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Outlook
From a cyclical standpoint, the economic environment remains benign. Fiscal stimulus continues in the United States and interest rates are moving lower at a time when unemployment is still low. We are monitoring the US labour market closely for signs of weakness but, for now, the "low firing / low hiring" equilibrium persists and we continue to see low risk of US recession. The main concern is the level of equity valuations, and this month we decided to diversify our long-standing overweight position in MSCI World with an allocation to Value stocks outside the US. This tilt helps us to manage our risk while still maintaining a modest overweight to the US.
US bond markets continue to offer little value in our view. Significant rate cuts are already priced into the front end of the curve and inflation expectations are very muted. This pricing contrasts with trends in other major bond markets where typically central banks are reaching the end of their rate cutting cycle. We also see little opportunity in US credit markets but we are more constructive on European credit, leaving us neutral on credit overall.
Despite recent market volatility, our positive view on gold remains unchanged. We continue to see it as a diversifier in an environment marked by policy uncertainty, fiscal fragility, and growing investor doubts over the long-term role of Treasuries and the US dollar. This month we also turn positive on oil.
In conclusion, we believe cyclical risks remain relatively contained, but structural vulnerabilities — particularly around AI circularity and concentration — are beginning to build. For now, we balance our positive view on equities with a diversifying position in International Value stocks, a long position in Gold and Oil, and an underweight position in duration and in the US dollar.
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢 Equities
We kept our positive view on equities with supportive economic conditions, positive earnings momentum and widespread fiscal stimulus. We diversified exposure into international value stocks in recognition of elevated valuations in parts of the US market.
🔴 Government bonds
We stayed negative on government bonds which offer little value in our view. US bonds are already pricing significant rate cuts which looks premature given resilient growth and still-sticky inflation pressures. We expect yields to gradually climb higher as markets reprice to a less dovish policy path.
🟢🔼 Commodities
We have turned positive on commodities, driven by an improved outlook across energy and industrial metals. The reversal in our energy view reflects upside risks to prices, as supply constraints and policy developments are likely to support the sector. Gold remains our preferred diversifier
🟡Corporate bonds (credit)
We remain neutral on credit as spreads are tight and leave little margin for error. While the macro backdrop and technicals are supportive, rising issuance linked to AI capex and M&A may weaken technicals into 2026.
Equities
🟢 US
We remain positive on US equities. Fiscal stimulus and lower rates support the market, unemployment is low, and recession risk remains limited.
🟡 UK
While valuations are reasonable, currency sensitivity and uncertainty around the domestic policy path in the UK have led us to maintain a neutral stance.
🟡Europe ex UK
We keep Europe neutral. Market breadth is healthier and returns are less concentrated, but valuations are not cheap and the stronger euro is a mild headwind for exporters.
🟡Japan
We remain neutral. While the strategic narrative around the new government’s pro-growth agenda is compelling, the recent run-up in prices warrants patience.
🟡🔽 Global Emerging Markets (EM)1
We have moved to neutral on EM equities. While valuations remain favourable, the downgrade reflects a more moderated view on China, where the previous positive stance was largely driven by exposure to Chinese technology. Given rising concentration risks and a desire for greater cyclical balance across emerging markets, we now prefer to express EM exposure through a more balanced allocation.
🟡🔽 Asia ex-Japan: China
China’s notably lower inflation forecast and mixed domestic activity have contributed to our move to a neutral stance. We prefer broader EM exposure to capture the AI theme.
🟡🔽 EM Asia ex China
Taiwan and Korea continue to benefit from semiconductor and AI investment cycles but we remain mindful of tariff and policy uncertainty that could periodically lift volatility.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴US
US bond markets continue to offer little value in our view. Significant rate cuts are already priced into the front end of the curve and inflation expectations are very muted.
🟢UK
We hold a constructive view on gilts. With fiscal risks largely priced in, we expect the Bank of England to cut interest rates further.
🔴Europe
We remain negative on Bunds. The outlook is challenged by higher household and fiscal spending, as well as increased long-end issuance, which is adding upward pressure to yields.
🟡 Japan
We remain neutral on Japanese government bonds. Fiscal expansion from the new government and a hawkish Bank of Japan are likely to push real yields further into positive territory.
🟡 US inflation-linked bonds
While there are upside risks to inflation in 2026, a mixed technical picture and current valuation levels keep us on the sidelines for now.
🟡 Emerging markets local currency bonds
We stay neutral on EM local debt, given mixed local fundamentals and fewer compelling valuations.
Investment grade credit
🟡US
We prefer to remain on the sidelines as valuations remain extremely tight, and expect AI-related corporate re-leveraging could offset the better-than-expected technical and fundamental backdrop.
🟡 Europe
We prefer European investment grade versus its US counterpart. Although valuations are similarly expensive, the macro environment in Europe is more supportive of the credit market.
🟡 Emerging markets USD
Valuations have tightened significantly, and idiosyncratic risks at the index level have reduced the headline relative value of emerging market corporates. We remain neutral.
High yield bonds (non-investment grade)
🟡US
We remain neutral on US high yield. Spreads have tightened but remain historically expensive. We prefer European high yield, which offers higher excess returns.
🟡🔽 Europe
We have moved to a neutral stance. While hedged yields and a supportive economic backdrop are constructive, we prefer exposure to other risk assets.
Commodities
🟢🔼 Energy
We upgraded to positive. There is reasonable demand for energy, and with minimal new incremental supply, we think the risks skew the outlook to the upside.
🟢 Gold
We maintain our positive view on gold with central bank and Chinese consumer demand remain robust. Impending Fed interest rate cuts continue to provide a tailwind for the asset.
🟢 Industrial metals
We remain positive on industrial metals, as incremental signs of supply disruption continue to support higher asset prices. We anticipate more concrete policy action from China and expect market tightness to persist into next year.
🟡 Agriculture
Agriculture prices remained subdued, with a robust supply picture given higher US corn yields and record global wheat production.
Currencies
🔴US $
The structural drivers of US dollar weakness remain intact: institutional credibility continues to erode, fiscal deficits are widening, and global reserve managers remain steady buyers of gold rather than US dollar assets.
🟡 UK £
While sterling may benefit from a weaker US dollar, disappointing growth and further easing in services inflation could prompt additional rate cuts, narrowing the currency’s carry advantage.
🟢EU €
We maintain a positive view on the euro, supported by widening liquidity and monetary-policy divergence, with the ECB likely to remain on pause. Potential clarity on German fiscal stimulus also presents upside for the euro into next year.
🟡 CNH ¥
While China’s trade balance and low inflation support the currency outlook, we prefer to maintain currency exposure elsewhere.
🟡 JPY ¥
We maintain a neutral stance on the Japanese yen, as fiscal expansion and cautious Bank of Japan policy are expected to keep the currency range-bound in the near term.
🟡Swiss franc ₣
The Swiss franc is supported by safe-haven demand and strong fiscal fundamentals, offsetting its low carry and leading to a neutral view.
Source: Schroders, December 2025. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.
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