Global stock markets posted significant gains throughout 2025, driving major indices to repeated all-time highs. While robust performance has benefited investors, experts highlight ongoing risks that may threaten these advances.
U.S. equities recorded substantial advances in 2025, with the S&P 500 up 16.4%, the Nasdaq adding 20.3%, and the Dow rising about 13%. The Russell 2000 small-cap index increased by 11.26%. In Asia, Japan’s Nikkei and Taiwan’s Weighted Index each climbed approximately 26% for the year.
Despite recurring geopolitical tensions, market participants have largely dismissed major concerns so far. However, analysts emphasize that any adverse developments—such as policy changes or intensifying global risks—could trigger sharper market declines. They point to signs of a late-cycle phase where strong corporate results have not always led to sustained price momentum. Still, movement into small-cap and cyclical sectors is viewed as a sign of underlying market resilience, although notable declines in leading technology stocks could have outsized repercussions.
On January 20, concerns about President Donald Trump’s proposed tariffs on Europe prompted a pullback among leading technology companies—the so-called ‘Magnificent Seven’—which collectively lost $653 billion in market value. Simultaneously, gold prices rose by 1.5%, reflecting increased demand for safe-haven assets.
Recent survey data from Bank of America indicates investors are holding one-sided bullish positions. At the start of 2025, U.S. fund managers recorded their strongest optimism towards equities since July 2021, yet protection against a significant correction has reached an eight-year low.
The survey notes that 38% of respondents anticipate continued global growth, supported by steady earnings, even as many have reduced their risk management measures. Cash allocations have dropped to historic lows and equity exposure remains elevated, with 48% of managers overweight on stocks. Notably, nearly half of surveyed managers lack downside protection, the highest proportion since 2018.
Investors in the survey identify geopolitical instability as the leading risk to markets for the first time since late 2024, with concerns about a potential bubble in artificial intelligence following.
A recent IMF assessment attributes much of the recent economic momentum to investments in technology, particularly AI. However, the organization warns that global risks are skewed to the downside, cautioning that a misalignment between expectations and actual AI-driven growth could result in swift market corrections.
Analysts and institutions urge vigilance, as markets remain exposed to reversals in sentiment driven by policy or geopolitical events, despite the recent period of strong performance.
