Familiar Trends Take the Lead in Early 2026

2025 was an experience, with events throughout the year making it memorable, to say the least. With that in mind, let’s look ahead into our foggy crystal ball to consider trends in 2026.

Inflation Outlook

A critical indicator will be inflation. Taming inflation has proven difficult for the Federal Reserve and multiple administrations: who knew that running large deficits could stimulate inflation? Our outlook is that inflation will likely drift slightly lower but remain above the Fed’s 2% target. This view is based on the continuation of the price moderation of shelter inflation (which makes up almost a third of the CPI) in 2026, as restrictive immigration policies limit population and demand growth for housing. Additional factors that could help lower the CPI include a slowdown in cost increases for education, pharmaceuticals, and new vehicles. These may, to some extent, offset ongoing cost pressures for electricity, food, and medical care, at least in the short- to medium-term. Continued moderation in the CPI could be a catalyst for both rate cuts and the markets in 2026, but it’s not the only factor to consider.

Geopolitical Events

Another area of note is geopolitical events. This year began with a significant one: the US arrest of Venezuela’s leader. While this event caught the world off guard, it also demonstrated something interesting about stock markets - most geopolitical events, even major ones, have limited impact on markets. For example, after the removal of Venezuela’s leader, markets rose the following Monday. While we remain vigilant about such events, it’s clear that geopolitical impacts are difficult to price. The only asset class that consistently reacts to geopolitical uncertainty is gold. Over the past year, rising geopolitical concerns have driven gold prices higher, which benefited our clients since we initiated a position in gold in 2024. Given ongoing uncertainties, we will likely continue to hold these positions as 2026 promises to be another eventful year geopolitically.

Global Stimulus and Financial Repression

The final major trend to take into consideration is continued global stimulus. While the US and the Fed receive much attention, many nations continue to run large government deficits and print significant amounts of money. Historically, this benefits global equities and certain commodities, such as gold, and we remain overweight in these positions. We believe we are entering a period similar to the post-WWII era of financial repression, when governments were much more involved in central bank decisions. That period saw economic growth but also inflation spikes. To reduce national debts accumulated during WWII, central banks kept rates artificially low, which hurt long-term bondholders by inflating away the debt while benefiting equities. This appears to be the current administration’s target as well. 

2026 is building the foundation for an active, and potentially interesting, year. While we are not prognosticators by any stretch of the imagination, we carefully observe and consider current events, trends and resulting implications. As always, we will remain vigilant.