2026 and beyond. Plus ça change, plus c’est la même chose.

First of all, only a very brief look back at 2025

It is hard to remember a calendar year for which I wrote a review where there really wasn’t much to comment on. Maybe it was after the recovery from the 2008 financial crisis and the 2012 Euro crisis, but before the 2016 Brexit referendum. So, 2014 perhaps.

I think it is more useful to look forward than back, but it is worth noting some of the factors we have experienced in 2025. President Trump was only inaugurated in January, believe it or not. That was rapidly followed by his meeting with President Zelensky in February, which was accompanied by the massive increase in spend on security and NATO by countries everywhere. Then the on/off/on introduction of US trade tariffs. The war in Ukraine is ongoing and the Israel / Palestine conflict came to a head. In the UK we have had to cope with the “black hole” (or not) in our finances, which has been dinner table conversation.

Inflation has remained elevated, but interest rates have, generally, been heading lower, which has supported rather uninspiring economic growth.

Given all that, so far it has been a good year for financial markets. Investors in most assets from bonds and equities to gold and crypto currencies have been rewarded. In particular, equity markets, by and large, have been very strong.

The more things change, the more they stay the same.

The US has been the dominant economy and political power globally for a long time now, bringing with it the label of “US exceptionalism”, which was something that the incoming President had as the focus of his policy; Make America Great Again. However, in the spring, as we digested the impact of his domestic and foreign policies particularly relating to trade tariffs, national security and energy and how they may put a 30 to 40 year trend of globalisation into reverse, there was real debate as to whether US exceptionalism was at an end. I remember giving a presentation discussing if we were at the beginning of the end of the US empire.

A few months later that has all been forgotten, the US remains the dominant economic and political power and, if anything, is exerting that power more forcefully. That is unlikely to change as the entrepreneurial nature of the US economy and society means its companies are at the forefront of the latest technological revolution; AI.

Meanwhile, the UK has been on a different path. The economies of China and India have dramatically grown over the last 20 years, and have leapfrogged the UK, as our manufacturing base has all but disappeared. Whilst we punch above our weight in foreign policy we don’t in economic terms. This has led to international and domestic companies increasingly viewing the UK as an unattractive place to invest their capital and grow businesses. This has meant that UK companies have grown internationally. Our largest companies are global in nature, whilst new, smaller companies have failed to materialise as they used to. Investors in financial markets have found better opportunities elsewhere, with UK pension funds leading the way to the exit.

This trend was exacerbated by Brexit, which had profound ramifications. Any hopes of a new government, with new policies reversing that trend are, I’m afraid, forlorn ones now that we have seen their second budget. The outlook for the UK is uninspiring on a global scale. That does not mean UK assets should be avoided, there are still plenty of excellent investment opportunities in bonds, equities and real estate, as well as private markets. There just won’t be many people investing in them.

In contrast we are likely to see the continuing inexorable rise of China and India as global economic powers. We have seen Asian countries including South Korea and Singapore and European ones such as Poland and the Czech Republic grow from being less developed or emerging economies to developed ones. The same will happen with China and India, China in different ways given its political structure, but we have never seen this happen on this scale, with both having populations approaching 1.5 billion.

There are other changes that are enhancing long term trends, medical advances are ensuring we live longer, populations are aging in most developed countries, and China for that matter. The rapid growth of Glucagon-like peptide-1 receptor agonists, the new wave of drugs used to treat obesity and diabetes, as well as being trialled in many other clinical areas will augment that structural shift.

It’s clear that the much sought after utopia of “world peace” is unachievable, if fact it feels as if geo-political conflict has gone up the agenda again,

My point is that even though there are content important events that impact society and economies, and we have seen many of those in 2025, not much has fundamentally changed as we move into 2026.

The outlook for the world economy

In a word; unexciting, In fact, the only excitement in global economic terms we’ve had in the 2020’s was the COVID induced recession and recovery. However, that has left scarring we are still dealing with. Inflation, which had been largely eradicated by the global financial crisis, inevitably reappeared and hasn’t gone back to the levels of the 2010’s and it’s unlikely to do so. That means interest rates will probably stay higher as well, unless economic growth stalls, which is quite possible.

Central banks, such as the Bank of England are walking an interest rate policy tightrope between managing inflation and economic growth. So far, they have done a decent job, but a policy mis-step could mean falling off the tightrope. That challenge remains the case in most countries. However, I think policy makers should be more concerned about supporting growth therefore cutting rates, the

UK being top of the list in my view. We are likely to see a steeper downward path in the US, as the Chair of the Federal Reserve’s tenure ends in February. The new Chair will be a Trump appointee and, in all likelihood, an advocate of lower interest rates. That could lead to stronger growth, and inflation, and lead to some excitement in financial markets.

Overall, the outlook is unexciting, but not grim, For the last few years we have gone into the following one fearing recession, I think that is unlikely, given what we know now.

What could cause a recession? A financial market shock (more on that below), interest rates staying too high for too long, another pandemic style event or something I can’t think of.

What could cause an acceleration of growth? An equity market boom or interest rates falling quickly are the most likely.

Any of the above is possible, but muddling along seems the most likely to me.

The outlook for financial markets

We should remember that markets are influenced by a very wide range of factors, including all those in the economy section above, also specific factors such as company profitability, One key metric is valuation, how expensive or cheap a market, asset class or individual investment is relative to others or history. Current valuations do take into account expectations for what the future holds, when the reality is different, financial markets will react to that.

Bond markets are offering decent value at present, although corporate bonds (those issued by companies) do look expensive on some measures, it is worth noting that when deciding which parts of the bond market to invest in, with lower risk probably being a sensible approach.

Equity markets are fascinating. They have been very strong through 2026, regions are at or near all-time highs, and they do look expensive compared to history, both on a regional and sector basis. Within the overall markets, companies that are perceived to be beneficiaries of the explosion in AI have driven markets higher, particularly the giant US technology companies such as Nvidia and Alphabet (Google). Investors have been chasing those companies whose share prices have been doing well and just putting more and more money into them. At the same time less popular companies, even though they may be perfectly good and doing well, have been ignored or sold meaning their share prices have languished. There has been a huge dispersion of returns from different parts of the equity market.

This dispersion has created opportunities and threats. Clearly the opportunity comes in buying out of favour, good quality companies that are executing on their business plans at attractive valuations. If you can do that, you would expect to be well rewarded over the long term. The threat comes from overall valuations and the risk that the expected growth in company profits does not materialise, that would make markets more expensive and at risk of falling. Profit growth may disappoint for a number of reasons, including slower economic growth, higher inflation or interest rates. Of course, we could have more of the same, but I do think we will see some change through 2026 as investors become more discerning.

A key concern is that the spectacular rise in the share prices of a small group of companies, mainly AI related, has meant they have become so big that they make up a very large portion of the market overall. Equity markets and the indices that represent them, such as the S&P500 Index in the US, have become concentrated around a small number of very large companies. Investors have been buying and buying them, often on leverage (borrowed money). If those share prices start falling, it can unwind

quickly and painfully. If that were to occur, it creates significant losses and can be the financial market shock I mentioned above that leads to recession. That threat is real.

Overall, though, I think the main asset classes of bond and equities will muddle though, just like the economy. But I really do think it will be important to be in the right part of those asset classes.

The last word

I haven’t touched on other asset classes such as real estate, commodities (mainly gold) or crypto currencies, They all have their part to play in investment portfolios at different times. It is vital to be diversified, the old adage “don’t have all your eggs in one basket” holds true for investing as well as farming.

Investing is a continually changing landscape, I think 2026 will be one where grasping the opportunities whilst being aware of the threats and being active in approach will be key, as it always is; plus ça change, plus c’est la même chose.