Richard Stroud
United Kingdom
2m
OUTLOOK FOR 2026 Hi everyone, as promised I thought I would share with you my thoughts for the next 12 months as we close out this year and head into 2026. It has been a good year for the markets and a much better one for the portfolio than the last few years. We have kept track with the S&P 500, whilst maintaining good diversification and not having anything like the concentration risk that the S&P 500 holds (the 10 biggest companies in the S&P 500 currently make up around 40% of the entire index) It is for this reason, along with the fact that the portfolio has a good chunk of positions outside the U.S, that the S&P 500 index is not a very good comparison for the portfolio. Nevertheless, it is good to see that we have had similar gains to the U.S markets, whilst maintaining better diversification (and as a result, lower risk) Our risk level itself has also maintained a low level, with an average risk score of 3 for eight months of the year, rising to a maximum of 5 during May and June when markets were feeling the heat of Trump’s tariffs. Below, I am going to outline what I think 2026 has in store for us, with both the possible positive drivers as well as factors to be wary of; The positive signs Despite higher rates and costs that can be partly attributed to the U.S import tariffs, a good deal of firms have shown resilience, with margins holding up and revenue growth remaining solid. Many analysts expect corporate earnings to rebound in 2026, so earnings growth itself could well drive valuations, helping to dismiss concerns at present about speculative hype, especially regarding big tech and AI. In my view, the biggest catalyst for growth in the U.S is likely to come from Trump’s bill, combining business-friendly regulation, possible corporate tax relief and favourable fiscal policies. All of these factors are big drivers of growth and positive sentiment which could further extend markets’ gains going forward. Of course, we have to include monetary policy in this, with the Fed poised to cut rates further in 2026, and with Trump’s pick for Jay Powell’s replacement as Fed chair almost certainly favouring continued cuts, the prospect of lower rates will also be a boon for stocks. I think we could also see a continuation of market broadening in 2026, especially if corporate earnings continue to improve as much as analysts think. As the portfolio is well diversified, this could provide a boost in returns for us. This would also be healthy for markets in general, especially in light of how top-heavy the S&P 500 currently is. What to be wary about The most positive catalyst I have just outlined regarding fiscal and monetary policies in the U.S could also prove to be the biggest risk for the economy, in that these factors could prove very inflationary. One of the biggest factors that has stopped Jay Powell from cutting rates as quickly as some would like is that inflation is still not at the Fed’s 2% target and cutting too soon and too quickly would stoke larger price rises. With the changes likely to come at the Fed’s monetary policy committee combined with favourable fiscal policies, it is a possibility that rates could be cut too quickly, inflation rises back up and the Fed may be put in a position to raise rates sharply again to counteract this. Of course, this would be disastrous for stocks, and in particular U.S bonds. Another factor to be wary of is the rising levels of U.S debt, for both companies and sovereign debt. The fiscal deficit is high in the States and is likely to rise further on the back of these positive fiscal policies likely to come in 2026. It is for this reason that I will continue to steer clear of U.S treasuries and for the moment put our small fixed income portion of the portfolio in U.K gilts, which remain much better supported on the back of the tax rises from the U.K budget from November. I have already mentioned in previous posts about the possible over-valuation of tech and AI related stocks, which I will continue to keep and eye on as we progress through 2026. However, as profits continue to be strong, the alarm bells for me only come when doubts about the productivity of AI become a much bigger concern. I hope that gives you an idea of what I am looking out for next year. Of course no one knows what will play out and when, but these are the things I think will have the most significance in the months ahead. With best wishes, Richard
1 reply
null
.