Markets have come a long way in the last ten years. 2009 heralded ten years of low interest rates, ample liquidity via Quantitative Easing and a strengthening global supply chain. In the last three years this has morphed into higher inflation, huge public debt, and reshoring of industrial capacity and sudden fall in global trade. As a result, policy shifts, geopolitical tensions, and capital movements now influence markets as strongly as traditional economic cycles. For investors, this new dynamic brings a broader range of possible outcomes, faster-moving markets (both up and down), and a renewed requirement for both strategic foresight and tactical shorter-term planning.

After a very pleasing portfolio return in 2025, global growth is expected to modestly improve in 2026, supported by easing trade tensions and potentially lower interest rates. Tight labour markets across most advanced economies continue to spur investment in technology and artificial intelligence (AI), enhancing productivity and reducing dependence on scarce workers. Inflation pressures are broadly contained, though remain stickier in the United States due to persistent tariffs. The United Kingdom remains an exception, burdened by high inflation, elevated taxes, and political uncertainty that weighs on business and consumer sentiment – although the FTSE does not appear concerned and despite reaching recent record highs, still looks attractive on valuations relative to US equities.

The UK economy faces structural and political hurdles. While slowly declining inflation may give the Bank of England some flexibility to cut rates, fiscal constraints and dependence on foreign capital amplify vulnerability to market swings. Ongoing political instability and voter discontent add to uncertainty, leaving our country at a pivotal crossroads.

In the US, temporary drags from tariffs and a prolonged government shutdown are dissipating. Economic growth is projected to rise from 1.7% in 2025 to 2.1% in 2026. The expansion is primarily driven by strong capital expenditure and possible fiscal support for households from Trumps new policies. AI investment underpins an outsized leap in corporate earnings, particularly in the technology sector, which in turn sustains high equity valuations. Inflation is expected to stay above 2.5%, prompting the Federal Reserve to tread carefully as it considers rate cuts that risk loosening policy too much. A gradual depreciation of the US dollar is likely as the country’s growth and interest rate advantage over other regions narrows.

Europe’s recovery is back on track, shifting from an export-dependent slowdown to domestic demand–led growth, especially supported by public spending. GDP growth is forecast at 1.3% in 2026, bolstered by low unemployment, rising real wages, and expanded fiscal investment—especially in German infrastructure, defence, and climate initiatives. With inflation close to the European Central Bank’s 2% target, monetary policy should remain steady. Eurozone equities appear inexpensive relative to global peers, but risks lie in overly optimistic corporate earnings forecasts, making stock selection crucial. Continued narrowing of yield gaps with the US could lend strength to the euro.

Across Asia, growth paths diverge. Japan is exiting decades of deflation, aided by robust wage growth, stronger asset prices, and corporate reforms that support a sustainable inflation regime. In contrast, China struggles with oversupply in some sectors and trade friction with the US, though its leadership in electric vehicles and digital technology remains key to global supply chains. India continues to shine as a structural growth story, driven by infrastructure investment, manufacturing expansion, and digital transformation.

As I have said before, we remain positive on our market outlook for the first half of 2026, whilst remaining very risk aware and investing with a margin of safety where we can (avoiding high valuations – such as AI stocks).

Overall, this complex landscape will require diversification, selectivity, and active portfolio management and these remain essential tools that we deploy for our clients navigating the uncertain global outlook for the months ahead. Nonetheless, it has been a good start to the year and for this we are grateful. I wonder which part of the world Trump will have taken over by the time I write next. Do have a good weekend.