The Trump administration is expected to maintain its “triple easing” cycle across fiscal, monetary, and regulatory fronts, providing support for equity markets. On the fiscal side, the One Big Beautiful Bill extends large-scale tax cuts alongside expanded spending, however it is projected to add $3.4 trillion to federal deficits over the next decade. From a monetary policy perspective, Kevin Hassett is widely expected to become the next Fed Chair. A strong proponent of lowering taxes and interest rates, he aligns closely with Trump’s push for more affordable borrowing costs. On the regulatory front, widespread deregulation has been implemented across financial services, energy, and labour markets.

Despite signs of a cooling labour market, consumption is expected to remain supportive of U.S. growth, provided the wealth effect is preserved. Retail investors were a dominant force in 2025, contrasting with more cautious institutional investors. This dynamic could amplify volatility in 2026 if sentiment shifts abruptly. A record $7.4 trillion in money market funds may provide equity market support during pullbacks, particularly with U.S. interest rates expected to reduce further.

Concerns persist around elevated technology valuations. However, unlike traditional bubbles characterised by overcapacity, AI growth remains constrained by power and data-centre limitations, with supply responses likely to take years rather than quarters. The market’s increasing focus on return on investment in AI is a healthy development, reducing share price correlations among the global cloud service hyper-scalers, with the Big-3 being Amazon, Microsoft and Google. Companies are now being penalised for oversized AI capital expenditure plans, echoing the discipline imposed by bond vigilantes on governments.

From a fundamental standpoint, U.S. earnings growth was solid in 2025, led by technology mega caps. Attractive earnings growth is expected across the broader S&P in 2026, though valuations remain demanding and expectations high, leaving little room for disappointment.

In the UK, the Bank of England cut interest rates four times in 2025 and is expected to continue easing in 2026, supported by a weakening labour market and moderating inflation. At its December meeting, the MPC (Monetary Policy Committee) projected inflation would fall close to the 2% target within six months. Retail equity participation in the UK is the lowest among G7 nations, but the launch of the Retail Investment Campaign in 2026, backed by major firms including the Big-4 banks, alongside government and regulatory support, could reinvigorate domestic participation. Combined with international investors returning to the UK market, significant share buybacks, and continuing M&A activity, the UK is increasingly attractive as a relative safe haven.

Europe also delivered strong performance in 2025, and this momentum is expected to continue in 2026 with valuations remaining reasonable. Fiscal policy is likely to be the main growth driver in the Eurozone. Germany, with historically low government debt at 60% of GDP, is forecasting a record deficit of 4.75% of GDP to fund defence and infrastructure spending. Broader Eurozone public spending could reach its highest level since the global financial crisis, supported by EU funds.

Although the U.S. dollar weakened in 2025, it remains relatively expensive on a trade weighted basis. Concerns over Fed independence, widening budget deficits, and central banks diversifying reserves suggest it is prudent to maintain meaningful U.S. dollar hedging in portfolios.

Gold recently reached record highs, supported by several dynamics. With the Fed expected to continue cutting rates in 2026 and central banks increasing gold exposure to diversify reserves, gold remains a hedge against fiscal sustainability concerns and therefore has a supportive backdrop within diversified portfolios.

A weaker U.S. dollar also benefits EM equities, which could extend their 2025 outperformance. Normalising inflation has enabled global central banks to cut rates further, improving liquidity and restoring the earnings growth premium of EM over developed markets. EM equities remain cheap and under-owned after a prolonged 15-year underperformance cycle, positioning them as prime beneficiaries of investor diversification in 2026. Chinese growth could surprise to the upside, supported by reduced trade tensions and accommodative government policies. With minimal inflation, China has scope to boost consumption and investment through supportive measures.

Healthcare, which had lagged under the Trump administration and traded at historic relative lows, has recently rebounded following high-profile deals aimed at lowering drug prices. After a steep downturn, leaner and more focused companies are investing in platform-based approaches, shortening development cycles, reducing costs, and integrating AI tools to improve productivity across discovery, trial design, and operations. With strong structural growth drivers, including ageing populations and rising social care needs, healthcare is likely to play a defensive role in diversified portfolios during 2026.

Fixed income volatility may persist, but U.S. Treasury yields eased in the second half of 2025, offering attractive returns amid moderating global inflation and falling interest rates.

Global equity markets performed well in 2025, but volatility may rise in 2026, particularly if inflation data falls short and raises concerns of delayed Fed rate cuts. While a new Fed Chair could temper such risks, concentration in U.S. technology mega caps remains a concern. U.S. markets are most exposed to a pullback, whereas valuations in Europe, UK, and EM appear more compelling. Maintaining diversification and adequate liquidity will be critical for capitalising on opportunities arising from potential market volatility.