Market & Strategy Update - Q4 2026
In the latest edition of our Quarterly Market & Strategy Update:
Executive summary
Economy
Global growth has remained resilient, but divergences among major economies are likely to keep widening if energy prices and yields stay elevated. The US economy stands out as the strongest, largely due to the ongoing AI capex boom supporting manufacturing activity, but also indirectly consumption. The EU economy has been resilient, but its energy dependence and political instability increase the odds of weakness going forward. China’s economy has been underwhelming, as consumption and investment growth have slowed, and the economy needs supportive measures. The Japanese economy continues to benefit from a combination of loose monetary and fiscal policy. Central banks have raised rates in response to the recent uptick in inflationary pressure, which is largely energy-related. Aggressive further hikes have been priced in, but their materialisation mostly depends on the direction of energy prices.
Equities
Equities are benefiting from an elevated nominal growth environment, and a sharp upward revision in profit expectations. The recent surge in energy prices and yields has however seen diverging performances among major markets, with European and many emerging Asian markets under pressure. At first glance, US equities have been particularly resilient, but under the surface, most sectors have recently retraced. This has resulted in negative investor sentiment, just as we enter into a positive seasonal period of the year. This points to an upward resolution of the current consolidation in the coming weeks. While cyclical sectors are likely to recover, technology should be the main driver of the next leg up. Within international equities, favour Japanese over European equities, while patience may still be required before Chinese and Indian markets resume their uptrend.
Bonds
The combination of re-emerging inflationary pressures, solid growth and rising tightening expectations have pushed bond yields higher across the curve. Developed market bonds have demonstrated again that they have lost their role as a key portfolio diversifier, being positively correlated to equities. Going forward, a continued rise in yields would require even more hikes being priced in, which is unlikely barring a sharp acceleration in energy prices. Despite our view that long-term yields are getting close to “fair value” in the US and EU, we are not willing to take on duration risk above 3-4 years. In the US, TIPS look much more attractive than nominal bonds. Credit spreads remain historically tight but have started widening for the riskiest segments. Contrary to DM bonds, emerging market local currency debt have delivered positive returns in 2026, reflecting a global shift in trade flow and reserve accumulation that we expect to continue
Currencies
The USD is torn between the hawkish Fed stance and relative US economic strength on one side, and the Treasury’s increasingly interventionist stance on the other. We expect a downside resolution, but it will require the dovish shift from the Fed to materialise. In the meantime, sideways action is most likely. The JPY stands out among DM currencies as having bottomed out, with considerable upside.
Commodities
Persisting tensions in the Middle East have seen another leg up in energy prices. While a resolution of the conflict would inevitably see oil prices retrace, the combination of resilient growth, renewed Chinese buying and depleted inventories point to supported energy prices in the coming months. Moreover, a continued rise in energy prices remains the key risk to the constructive growth environment, making energy exposure an important diversifier. Other key commodities remain compelling, given idiosyncratic structural tailwinds.
Precious metals
While the Treasury’s announcement has solidified our view that gold’s bull market isn’t over, the sharp rise in tightening expectations of the past quarter has kept bullion under pressure. The persisting hawkish stance of the Fed could extend this consolidation a while longer, but we suspect that we are getting close to the uptrend reasserting itself.
To read our complete Market & Strategy Update for this quarter
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