A solid starting point for 2026

• Macro: a supportive backdrop
• Equities: rally has room to run 
• Bonds: favouring high-quality bonds

The macroenvironment remains supportive. The US, Europe and even China are proving to be resilient in the face of the trade war. Furthermore, fiscal spending from the ‘Big Beautiful Bill’ and the European investments in infrastructure and defence provide additional support in 2026.

The European Central Bank (ECB) appears content with the current environment and will most likely not lower its policy rate further next year. In contrast, the Federal Reserve (Fed) is expected to continue to cut rates. The Fed lowered the policy rate again in December and we expect three additional rate cuts next year. This outlook is supported by a continued weakening in the labour market and inflation being kept in check due to tailwinds from falling oil prices. Furthermore, a shift in the composition of Fed members next year is likely to pave the way for additional rate cuts. Specifically, Fed Chair Jerome Powell and a couple of other members will be replaced with people who favour a policy of further rate cuts. A policy which US President Donald Trump has avidly supported this year.

Equity valuations are elevated, especially among AI-related companies in the US. However, they are not at the levels seen during the dot-com bubble. Combined with a supportive macroenvironment and double-digit earnings growth expectations, we believe that the current rally has room to run further. Therefore, we maintain our overweight position in equities. On a regional level, we prefer the US compared to Europe due to higher economic and earnings growth. At the same time, AI developments will remain key for equity returns and the US is more dominant in this field. In our view, this offsets our outlook for the weakening dollar. In fact, a weakening dollar could be a tailwind for earnings of US companies with international revenues, which makes US equities a partial hedge against currency risk.

We are currently neutral on bonds with a preference for high-quality (HQ) bonds over high-return (HR) bonds. In our view, the risk premium that compensates investors for the additional risk of HR bonds, like corporate high-yield bonds, is currently at very low levels and does not provide sufficient compensation for risk.

Yields on bonds with longer maturities have risen in recent months, especially in Europe where they are now back at the elevated levels seen in March. This rise is partially because increased government borrowing and fiscal spending create upward pressure on long-term yields. Furthermore, the transfer of Dutch pension funds to the new system at the beginning of 2026 could lead to a further push higher for yields of European bonds with longer maturities. As a result, German Bund yields are now close to our 2026 year-end target. These developments are aligned with our cautious view on government bonds within the HQ bond portfolio, in which we prefer covered bonds.

The macroenvironment and earnings outlook remain constructive. We see the most opportunities in equities, specifically in the US. Additionally, gold remains an attractive way to diversify the portfolio. We are neutral on bonds with a preference for HQ bonds over HR bonds. In conclusion, after a rocky but overall solid 2025, we believe that next year will be a positive year for investors. From all of us, we wish you happy holidays and a happy new (investment) year.