The year 2025 has certainly been eventful. Given the global economic challenges, particularly the tariff war initiated by Donald Trump, it might come as a surprise that U.S. stocks are closing the year near their record highs.

Considering the performance of Sir Keir Starmer’s government, few would have anticipated the FTSE 100 index reaching similar heights.

The U.S. economy has had a relatively strong year, but it’s important to remember that markets are driven as much by sentiment as by statistics.

Innovative technologies and the anticipation of a more accommodating Federal Reserve have fueled market optimism, with the UK benefiting from this momentum as well.

However, the question remains: can stock prices continue their upward trajectory as many industry experts predict for the coming year?

The perspective from sunny Florida offers a stark contrast to that of overcast London. This might be dubbed the Mar-a-Lago financial outlook, characterized by the polished and seemingly ageless appearances favored by Trump supporters.

What a year: Donald Trump launched a slew of trade tariffs in 2025

We know all bull markets eventually come to an end, so the question is whether that vibrant, optimistic perspective can be sustained for another year.

One key element, cheaper money, will certainly run on a while yet. The next head of the Federal Reserve Board will be a solid supporter of the President.

We knew that, but to avoid any doubt Trump declared last week: ‘Anybody that disagrees with me will never be Fed chairman.’

It’s true the chair is not all-powerful, and could be out-voted by the rest of the board. But the reality is that the most effective curb on an overly-compliant Fed will be the bond markets.

For now they seem content to cover the huge fiscal deficit of 6.5 per cent of GDP at a reasonable rate – ten-year Treasury notes are yielding 4.2 per cent against 4.5 per cent a year ago.

If inflation were to start nosing up maybe they might take fright, but right now there is little hint of concern. The bond market vigilantes are holding their fire.

There are all the arguments about Artificial Intelligence (AI) being a bubble – that the shares of the principal players are vastly over-valued. 

There’s not much point in adding to this debate, except to note that US corporations as a whole are forecasting rising earnings through 2026, and that gives support to the market overall.

So it’s at least plausible that money could be shifted out of the more outlandishly-valued AI stocks into solid enterprises generating higher profits without a total market meltdown.

Outcome: Given the performance of Sir Keir Starmer’s government, you would not have envisaged the FTSE 100 index performing well this year

Besides, there will be many winners from the AI revolution, in particular the corporations that use technology to hold down costs and bump up earnings.

Yet it is impossible not to feel uneasy. Mar-a-Lago’s cosmetic surgeons can make people appear more youthful, but they don’t make them healthier. That comes from something else.

Don’t dismiss the importance of an optimistic outlook in generating and sustaining growth. 

You can see the damage our own government has inflicted on our economy by the Chancellor’s relentless gloom. But dig down and there are all sorts of reasons for concern about the US. 

These include the possibility of a recession, a surge in inflation, a run on the dollar and/or on the bond markets – the usual suspects. Beyond these is the unknown impact of AI on employment. 

It is clearly killing a lot of entry-level jobs here and probably in the UK too, and that is alarming for social as well as economic reasons. 

As yet AI doesn’t seem to be undermining employment more generally, but that may become more evident soon.

Finally, there are the ‘unknown unknowns’, the phrase made famous by former US defence secretary Donald Rumsfeld to describe things you didn’t even realise you didn’t know about.

Faced with all this, I fall back on the law coined by the economist Rudiger Dornbusch, who noted: ‘In economics, things take longer to happen than you think they will, then happen faster than you thought they could.’

So the Mar-a-Lago glow could persist a while yet. It would be nice to believe this wave of optimism will subside gently, rather than chaotically.

Let’s hope that’s right, but be aware that a nasty correction may come before 2026 is out.

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