The STOXX index finished 2025 with its best showing since 2021 on the back of falling interest rates, Germany's fiscal boost, and a rotation out of lofty U.S. tech names.
Asia, meanwhile, saw Hong Kong stocks kick off 2026 by climbing to a 1 1/2-month high, and markets in Taiwan, South Korea, and Singapore hit record highs. Markets in Japan and China were closed.
S&P 500 futures rose 0.5%, while Nasdaq futures added 1%.
Precious metals extended their runaway rally from last year, with spot gold up 1.6% to $4,384 an ounce, while spot silver jumped 4.3% to $74.37 per ounce.
Gold's 2025 rise was its biggest in 46 years, while silver and platinum made their largest gains on record, driven by a cocktail of factors including the Fed's rate cuts, geopolitical flashpoints, robust central bank buying, and ETF inflows.
Stocks made strong gains in 2025 as markets weathered a year of tariff wars, the longest government shutdown in U.S. history, geopolitical strife, as well as threats to central bank independence.
"The 2025 U.S. equity market rally has been fuelled by AI euphoria, robust corporate earnings, share buybacks, and strong retail flows," said Saira Malik, chief investment officer at Nuveen.
"Bouts of volatility, such as those sparked by macro, geopolitical, and policy uncertainty, as well as periodic shifts in sentiment around AI, are likely to remain a feature of equity markets, meaning investors should expect more hiccups in the coming year."
James Ooi, market strategist at Tiger Brokers, said it was natural for investors to expect markets to correct lower in 2026.
"This mindset reflects the classic gambler’s fallacy - the belief that strong past performance must be followed by mean reversion."
But the ongoing AI boom remains a powerful tailwind providing markets support into 2026, he wrote.
EYES ON THE FED
Much of investors' attention this year will also be on the strength of the U.S. economy and the Fed's policy path.
A slew of economic data delayed by the U.S. government shutdown is due in the coming days and could be key in determining how far rate cuts can go.
Traders have priced in a 15% chance that the U.S. central bank will ease rates this month, though they expect two more cuts this year.
The dollar was flat, with the euro down very slightly at $1.1729, while sterling gave up early gains to steady at $1.3456.
The yen was steady too at 156.86 per dollar, not far from levels that kept investors skittish about possible intervention from Japanese authorities to shore up the ailing currency.
With further easing expected by the Fed this year, even as some of its peers look set to hike, that has in turn dragged on the dollar, which in 2025 clocked its biggest annual drop in eight years.
The greenback has also been roiled by Trump's chaotic trade policies and worries about Fed independence - an issue set to come to the fore this year as the U.S. president prepares to announce Chair Jerome Powell's replacement later this month.
In commodities, oil prices were a tad lower on Friday after posting their biggest annual loss since 2020.
Brent crude futures were down 0.3% to $60.62 per barrel, while U.S. crude fell 0.4% to $57.20 a barrel. O/R/
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