Market & Strategy Update - Q1 2026
- Matthieu
- 1 day ago
- 4 min read
In the latest edition of our Quarterly Market & Strategy Update:
Executive summary
Economy
The outlook for the global economy remains encouraging, given accommodative fiscal deficits, recent rate cuts, low energy prices, and a weak USD. The US government shutdown has raised concerns about the economy, particularly the labor market, but the (fragile) combination of elevated capex, solid asset markets, and resilient consumption keeps this K-shaped economy on track for now. The EU economy will continue to benefit from a cyclical upswing driven by fiscal expansion and continued credit growth. In China, the recent underwhelming economic data will prove temporary, as the government remains committed to supporting domestic demand in 2026. The prevailing bias toward fiscal expansion and monetary accommodation will keep inflationary risks on the table, particularly later in 2026.
Equities
Despite bouts of volatility, global equities have performed well as growth has proved resilient. International equities have maintained their outperformance versus US equities. This will likely trigger some significant allocation shifts into 2026, as foreigners remain overly allocated to US equities and incentives to repatriate capital to domestic economies grow. The tech sector has performed well, but recent developments are pointing to cracks in the AI thematic, and recent weeks have seen increased participation by other sectors, which is key for the continuation of the bull market. We continue to favor cyclical sectors with specific tailwinds. International equities should remain favoured in 2026, given strong cyclical tailwinds, lower investor exposure, and attractive valuations.
Bonds
Growth concerns and rate cuts have kept bond volatility in check and yields under pressure for most of Q4. However, overly accommodative fiscal and monetary policies are likely to keep nominal growth elevated, which will reassert upward pressure on long-term yields and steepen yield curves in DM markets, as currently seen in Japan. Duration remains unattractive in the US and EU, given no inclination toward fiscal rectitude. Credit spreads remain historically tight and are not suggestive of an imminent growth slowdown, but they offer little justification for increasing exposure. Investors should instead increase risk allocation to emerging markets, where real rates are more attractive, growth dynamics are more structural, and currencies are likely to face appreciating pressure.
Currencies
The USD remains in a structural bear market. While its current consolidation could persist in the short-term, it is set to resolve to the downside in the coming months, as more cuts are priced back into the curve.
Commodities
Despite persistent weakness in energy prices, commodities have done well in Q4, driven by industrial and precious metals. The excessive bearishness on energy prices is likely to be challenged in 2026, as the supply demand picture is shifting. Investors should keep exposure to commodities given the expected sticky inflation and resilient growth environment.
Precious metals
Gold has been consolidating in Q4 and investors should be on the lookout for the next leg up in this historical bull market. Interestingly, other precious metals remain in the lead this year and investors are still under allocated. Pullbacks should be bought.
To read our complete Market & Strategy Update for this quarter
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This document has been prepared using sources believed to be reliable but should not be assumed to be accurate or complete. The statements and opinions it incorporates were formed after careful consideration and may be subject to change without notice. The author and distributors of this document expressly disclaim any and all liability for inaccuracies it may contain and shall not be held liable for any damage that may result from any use of the information presented herein. Past performance is not indicative of future results. Values of an investment may fall as well as rise. This document is intended for information purposes only and should not be construed as a recommendation, an offer or the solicitation of an offer to buy or sell any investment products or services. The use of any information contained in this document shall be at the sole discretion and risk of the user. Prior to making any investment or financial decisions, an investor should seek individualised advice from his/her financial, legal and tax advisors that consider all of the particular facts and circumstances of an investor's own situation.
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