Resilient Global Equities Overcome Economic Uncertainty
Global equity markets advanced in the fourth quarter, capping another strong year that saw major indexes rise to all-time highs. Equities were buoyed by resilient corporate earnings, enormous capital expenditures among artificial intelligence-related companies, and expectations for interest rate cuts. The U.S. markets overcame credit concerns in certain pockets of the market and the U.S. federal government shutdown, the longest in U.S history, which delayed economic data releases to new heights. In Europe, equity markets were broadly positive in dollar terms, while stocks in emerging markets also advanced and performed mostly in line with equities in developed non-U.S. markets in U.S. dollar terms. However, the Chinese market declined over the quarter despite stimulus from policy measures and lowered concerns over U.S.-China trade relations.
Global fixed income markets were mixed over the period. U.S. Treasury bill yields declined as the Federal Reserve reduced the federal funds target rate by 25 basis points twice during the quarter. At the end of the year, the fed funds target was in the 3.50% to 3.75% range. Short- and intermediate-term U.S. Treasury yields fell to a lesser degree, but longer-term U.S. Treasury yields rose slightly. Bond returns in developed non-U.S. markets were slightly negative in U.S. dollar terms. In the eurozone, longer-term bond yields increased in several countries as policymakers provided clearer policy signals for 2026 and leaders at the European Central Bank held short-term interest rates steady. In Japan, the yield curve steepened, and the yen fell significantly versus the dollar; toward the end of the period, the Bank of Japan raised its benchmark interest rate from 0.50% to 0.75%. Meanwhile, emerging markets bonds produced positive returns in U.S. dollar terms in the fourth quarter.
Benchmark Performance
EQUITIES
QTD (%)
YTD (%)
Domestic Stocks – All Cap
Russell 3000 Index
2.40
17.15
Domestic Stocks – Large Cap
Russell 1000 Index
2.41
17.37
International Stocks – Developed and Emerging Markets MSCI All Country World Index ex USA Net
5.05
32.39
International Stocks – Developed Markets MSCI EAFE Index Net
4.86
31.22
FIXED INCOME
Domestic Bonds – Investment Grade Bloomberg U.S. Aggregate Bond Index
1.10
7.30
Domestic Bonds – Short-Term Investment Grade Bloomberg U.S. 1–5 Year Treasury TIPS Index
0.33
6.55
Domestic Bonds – Ultra Short-Term Investment Grade FTSE 3-Month Treasury Bill Index
1.02
4.40
OUTLOOK
Global equity and fixed income markets advanced in the fourth quarter as major indexes rose to all-time highs and capped off a strong year. While equity valuations remain elevated, we have a constructive view on underlying fundamentals, which are bolstered by ongoing fiscal stimulus, easing monetary policy, and a regulatory environment that is generally favorable for risk assets. We continue to see valuation disparities across markets, and favor sectors and regions with improving fundamentals where policy tailwinds and reasonable valuations converge. Policy easing is likely not fully appreciated by markets, offering potential support for equities. Key risks to global markets include narrowness of AI trends supporting earnings and economic growth and markets, sticky inflation, potential for quickening labor market declines, and ongoing geopolitical tensions. We continue to monitor the economic landscape and maintain our disciplined investment process as we look for opportunities moving forward.
The views expressed are as of the indicated date, are subject to change without notice, and may differ from those of other T. Rowe Price associates. Information and opinions are derived from proprietary and nonproprietary sources deemed to be reliable; the accuracy of those sources is not guaranteed. This material does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities; it does not constitute investment advice and should not be relied upon as such. Past performance does not guarantee future results. Diversification cannot assure a profit or protect against loss in a declining market. See our glossary of financial terms and index definitions at https://www.troweprice.com/en/us/glossary. An investor cannot invest directly in an index.
MARKET RECAP
Resilient Global Equities Overcome Economic Uncertainty
Global equity markets advanced in the fourth quarter, capping another strong year that saw major indexes rise to all-time highs. Equities were buoyed by resilient corporate earnings, enormous capital expenditures among artificial intelligence-related companies, and expectations for interest rate cuts. The U.S. markets overcame credit concerns in certain pockets of the market and the U.S. federal government shutdown, the longest in U.S history, which delayed economic data releases to new heights. In Europe, equity markets were broadly positive in dollar terms, while stocks in emerging markets also advanced and performed mostly in line with equities in developed non-U.S. markets in U.S. dollar terms. However, the Chinese market declined over the quarter despite stimulus from policy measures and lowered concerns over U.S.-China trade relations.
Global fixed income markets were mixed over the period. U.S. Treasury bill yields declined as the Federal Reserve reduced the federal funds target rate by 25 basis points twice during the quarter. At the end of the year, the fed funds target was in the 3.50% to 3.75% range. Short- and intermediate-term U.S. Treasury yields fell to a lesser degree, but longer-term U.S. Treasury yields rose slightly. Bond returns in developed non-U.S. markets were slightly negative in U.S. dollar terms. In the eurozone, longer-term bond yields increased in several countries as policymakers provided clearer policy signals for 2026 and leaders at the European Central Bank held short-term interest rates steady. In Japan, the yield curve steepened, and the yen fell significantly versus the dollar; toward the end of the period, the Bank of Japan raised its benchmark interest rate from 0.50% to 0.75%. Meanwhile, emerging markets bonds produced positive returns in U.S. dollar terms in the fourth quarter.
Benchmark Performance
Russell 3000 Index
Russell 1000 Index
MSCI All Country World Index ex USA Net
MSCI EAFE Index Net
Bloomberg U.S. Aggregate Bond Index
Bloomberg U.S. 1–5 Year Treasury TIPS Index
FTSE 3-Month Treasury Bill Index
OUTLOOK
Global equity and fixed income markets advanced in the fourth quarter as major indexes rose to all-time highs and capped off a strong year. While equity valuations remain elevated, we have a constructive view on underlying fundamentals, which are bolstered by ongoing fiscal stimulus, easing monetary policy, and a regulatory environment that is generally favorable for risk assets. We continue to see valuation disparities across markets, and favor sectors and regions with improving fundamentals where policy tailwinds and reasonable valuations converge. Policy easing is likely not fully appreciated by markets, offering potential support for equities. Key risks to global markets include narrowness of AI trends supporting earnings and economic growth and markets, sticky inflation, potential for quickening labor market declines, and ongoing geopolitical tensions. We continue to monitor the economic landscape and maintain our disciplined investment process as we look for opportunities moving forward.
The views expressed are as of the indicated date, are subject to change without notice, and may differ from those of other T. Rowe Price associates. Information and opinions are derived from proprietary and nonproprietary sources deemed to be reliable; the accuracy of those sources is not guaranteed. This material does not constitute a distribution, offer, invitation, recommendation, or solicitation to sell or buy any securities; it does not constitute investment advice and should not be relied upon as such. Past performance does not guarantee future results. Diversification cannot assure a profit or protect against loss in a declining market. See our glossary of financial terms and index definitions at https://www.troweprice.com/en/us/glossary. An investor cannot invest directly in an index.
202601-5133408