Market Musings 131225: Santa Rally incoming?
December video: Outlook 2026 (click on link)
1. Government stimulus to support growth:
the US should focus on tax cuts and deregulation efforts ahead of the
November 2026 mid-term elections. Europe will spend on infrastructure
and defence, while China and Japan will also add targeted measures to
support domestic consumption and the property market.
2. Moderating inflation to allow lower US rates: steady
US inflation and low/falling inflation in Europe and Asia should allow
for lower interest rates in the US and emerging markets. Long-term
yields should remain around current levels, with IG credit potentially
benefiting from tighter credit spreads. Favour Euro IG credit including
financials, EM sovereign bonds in local currency
3. Ongoing bull market in stocks.
Ample liquidity, lower rates, earnings growth, deregulation and buoyant
buybacks support global stock markets. Prefer World ex-US (Japan,
emerging markets), health care, Euro banks and mining sectors.
4. Precious and strategic metals:
long-term positive on precious metals given expected weaker US dollar,
lower rates and persistent geopolitical volatility. Copper to benefit
from strong global AI/electrification demand with supply limited. Favour
exposure to physical copper, global mining stocks.
5. Six investment themes for 2026:
i) Ride the bull but guard the gains; ii) Escape shrinking cash
returns; iii) Beyond algorithms, the new AI frontiers; iv) Welcome to
the new age of scarcity; v) Investing when policy rules markets; vi)
Opportunity Rising: the allure of Asia.
2026 Investment Themes (click on link)
Global markets are entering a new phase marked by falling interest rates, abundant liquidity, and structural changes in technology and resources. These dynamics are reshaping returns, asset allocation, and long-term investment opportunities.
- Lower rates squeeze returns
Central banks worldwide, led by the U.S. Federal Reserve, continue to cut rates, pushing short-term yields near zero and dragging long-term bond returns lower. Savers face minimal returns on cash and government bonds, while corporate spreads remain at cycle lows—reviving the hunt for yield. - Liquidity fuels equities
Strong liquidity, robust earnings, record buybacks, and retail optimism could drive global stocks higher despite stretched U.S. valuations. Volatility, however, is expected to rise as the bull market enters its fourth year. - Dollar weakness and…
