Few years in recent market history have tested investor confidence quite like 2025. From sudden tariff shocks and renewed geopolitical conflict to repeated questions over whether artificial intelligence enthusiasm had tipped into bubble territory, global equities spent much of the year oscillating between sharp sell-offs and equally forceful rebounds.
But the tone may be changing in the new year, says international analyst Greg Boland. Volatility is showing signs of easing, leadership is broadening beyond a narrow group of mega-cap stocks, and investors are increasingly positioning for a more constructive — if still selective — 2026.
Tariffs trigger a year of sharp swings
According to Boland, the defining feature of 2025 was how abruptly sentiment shifted around policy decisions, particularly in the United States, where President Donald Trump’s April announcement of ‘Liberation Day’ tariffs proved an early catalyst for market disruption.
Those tariffs, particularly on key trading partners including Mexico, China, Canada and Switzerland, triggered one of the most violent market reactions of the year, with US equities falling more than 20%.
“The Trump tariffs definitely had a huge effect on markets, and the markets reacted badly to those tariffs,” Boland says. “It was one of the biggest swings on the downside, and then really a V-shaped bounce back up, that happened.”
The benchmark S&P 500 spent much of the rest of the year moving sideways between 6,500 and 6,900 points, only recently showing signs of breaking out of that range, he adds.
Volatility spikes — and then retreats
That uncertainty showed up clearly in volatility measures. During the height of tariff-driven turmoil, the VIX surged to levels typically associated with crisis conditions. Even later in the year, renewed fears of an AI bubble briefly pushed volatility back into the mid-20s.
“When the VIX is under 19, it’s pretty bullish,” Boland explains. “During the Trump tariff time, VIX got up to about 68 and, more recently, up to around 26. These volatility events have definitely driven the US market sideways a lot during this year.”
At the same time, geopolitical tensions added another layer of unpredictability. Ongoing conflicts in Gaza and Ukraine remained a “huge drain on resources for the world and markets,” Boland says, even as political leaders suggested potential resolutions were nearing.
Against that backdrop, it was perhaps unsurprising that investors crowded into familiar names.
AI dominance — and growing fatigue
One of the most persistent themes of 2025 was the extraordinary concentration of market leadership in a small group of technology stocks.
“The Magnificent Seven make up 37% of the S&P 500,” Boland notes. “That 10-year story where you’ve got these mega stocks becoming $4 trillion stocks — Microsoft, Apple and Nvidia — that’s been a huge change in the market.”
The AI investment boom helped propel those stocks to fresh highs, but it also fuelled repeated comparisons to the dot-com era. Throughout October and November, rhetoric around an imminent AI bubble intensified, triggering bouts of selling in the sector.
Yet the feared collapse never arrived.
“We haven’t seen that,” Boland says. “In fact, the market is now starting to shake that off and is starting to get higher.”
More importantly, leadership has begun to rotate.
A shift towards breadth and balance
As 2025 drew to a close, Boland observed a notable change beneath the surface of the market.
“Although 2025 was challenging — the leadership was very narrow, volatility was uncomfortable, and confidence was fragile for most of the year — in the final few weeks, there seemed to be stabilisation and direction,” he says.
Smaller-cap stocks and “real-world” sectors such as financials, industrials and materials have started to outperform, a development Boland sees as crucial as markets stabilise. “That matters a lot both psychologically and technically, because it signals investors are getting comfortable again, positioning for upside rather than constantly buying put options to cover downside risk.”
What drives markets in 2026?
Looking ahead, Boland sees three main forces shaping markets in the year ahead: US monetary policy, election dynamics and trade settings.
The pivot by the Federal Reserve towards easing has already altered the outlook. While policymakers have stressed that future moves remain data-dependent, recent economic figures have surprised to the upside.
“March and July are now looking like times when the market will benefit from an easing of interest rates in the US,” Boland says. “This will really support the real-economy segments of the market.”
Lower borrowing costs and improved liquidity, he adds, should encourage capital expenditure and corporate risk-taking — conditions that tend to favour smaller companies and cyclical sectors.
Political cycles also matter. With US midterm elections due in November, history suggests the preceding 12 months are often supportive for equities.
“Markets crave clarity,” Boland says. “Political risks moderate, fiscal expectations often improve, and investors get greater confidence around policy direction. And when you combine this with the easing conditions or easing cycle in interest rates, historically, then equities do very well.”
Seasonal signals and precious metals
Seasonal effects may also play a role, particularly if investor psychology improves early in the year. While the much-discussed Santa Claus rally disappointed in both 2024 and 2025, its longer-term track record remains influential.
“From 1950, the market has risen by 1.3% in that seven-day period,” Boland notes. “That’s not insignificant.”
He also highlights the so-called January effect, when asset managers rotate into smaller-cap names, often providing an early boost to market breadth.
Meanwhile, precious metals are sending their own signal.
“Gold and silver are both surging to record levels at the moment,” Boland says, pointing to strong ETF flows and rising interest in Australian gold miners. Rather than signalling fear, he sees this as strategic diversification.
“It signals not fear but strategic positioning, and investors diversifying and not panicking, which is good for the market,” he says.
Is 8,000 on the S&P realistic?
With the S&P hovering just above 6,900, some analysts have floated targets of 7,500 or even 8,000 by late 2026. Boland argues those numbers are ambitious but not implausible.
“From where we are now, up to 8,000 is only 14%,” he says. “There’s no real reason why that can’t happen.”
Crucially, he stresses, markets do not require runaway optimism to move higher.
“Markets don’t need euphoria; they just need steady delivery,” Boland says. “The most important takeaway is not the number; it’s the structure of the market.”
If leadership continues to broaden beyond mega-cap technology into industrials, financials, energy, materials, small caps and precious metals, Boland believes 2026 could deliver one of the most balanced rallies in more than a decade.
“Look back to 2016, when the mega-caps came to the fore; until now, that’s been the story,” he observes. “Hopefully, it’s now more of a broader story, and that will hopefully help stocks in the US, and also in Australia.
“The Australian market’s up around 7.5 to 8% for the last three years, and that story should continue – hopefully with a slightly bigger number in 2026.”
