Through the Summer and then into the dreaded Autumn, financial markets have been remarkably calm.
The US government closed for more than 40 days, and there are some signs that the US economy has ground to a halt. One AI leader (Sam Altman) apparently talked of the need for the US government to bail out his firm one day. The response of US markets was muted at worst.
“Stability leads to instability” said Hyman Minsky, and he believed markets were by their very nature unstable. Why? Because human nature is predictable, and predictable actions lead to instability. Stability means increased confidence. This breeds overconfidence, with investors and borrowers believing the good times will continue indefinitely. Borrowing and gearing increases as institutions and private investors rush into riskier investments as if they were risk-free. Of course it all ends in tears and markets come crashing down.
He set this out in 1982, in the wake of the 1960s and 1970s boom and nasty bust. You can only ignore his point if you believe that human nature has changed OR you believe “this time is different”, the three most dangerous words when investing.
More positively, as we look into 2026 much of the world is in expansionary mode, with an expectation of falling interest rates and wide-ranging reform. Could this release pent-up demand from both companies and consumers who have been hesitant to make spending decisions in 2025, shaken by Trump tariffs, political uncertainty, or both? It is finely balanced.
The UK is a case in point. Valuations are modest at worst, and much is cheap. Interest rates could be under 3% by the end of 2026 – the poor economic growth rates this week help that trend, and UK inflation has probably peaked too. This has been sufficient to encourage institutions, domestic and global, to buy the FTSE 100 index, up 18% year to date. But for this to extend to more domestically-focussed companies, those which inhabit the FTSE 250 and Small Cap indices (up just 5% and 2% respectively in 2025), political leadership needs to improve dramatically.
Everyone to whom I have spoken felt that an increase in UK income tax was the sensible, one big decision, to deal with the immediate need to increase government revenue. Today it is reported that this will not happen. One source says we should now expect a “smorgasbord” of small measures – which sounds messy and unnecessary. Instead of leadership there appears to be fudge and fear.
I will keep my fingers crossed, as the UK investment opportunities are exciting if the right balance can be struck in the Budget, which must include reforms to unlock the UK economy right now, not in the 2030s. UK smaller companies are cheap, unloved, and overlooked – ordinarily the classic contrarian ingredients for an investment which will pay off handsomely.
The UK stock market has a Value tilt, so not choc-a-bloc with high tech businesses. A big part of its attraction is that it is dull! The latest “exciting” new listing is Princes, well known to all of you tinned tuna and sardine lovers. The Growth style has been dominant for the last decade or so, reflected in the performance of the tech-dominated US stock market. The worm appears to be turning. For example, the iShares MSCI World Value Factor ETF is up 25% year to date, whereas the iShares World Momentum Factor ETF is up just 11%. If the world is in expansionary mode in 2026, you should expect this kind of differential to persist.
In such a period there should also be more upside for a wide range of commodities, where many now suffer limited supply with the prospect of increasing demand – great for investors. For those of you comfortable with focussed commodity funds, which can be extremely volatile, on the 13th June Friday note I set out a case for palladium with the help of G&R in New York. It had a decent run, up 35% at best, and still up around 25%. Uranium has also caught our attention.
Uranium is essential for nuclear power. Nuclear used to be regarded as dirty and unsafe. Now the opposite is the case. Japan suffered a notable disaster at Fukushima in 2011, yet has now re-started 14 nuclear reactors. Now nuclear is not just regarded as clean and safe but also reliable – it doesn’t depend on the weather.
Governments are rapidly getting on board e.g. the US has pledged to quadruple nuclear capacity by 2050. Reactor requirements are expected to grow by a third by 2030, and double by 2040. The World Nuclear Association has warned that the industry risks a severe supply crunch. There is a huge amount more I could add on the supply and demand issues, but space is limited – there is much to explore if this interests you.
G&R say that “From an energy perspective, this is perhaps the most transformative development in human history.” They might be over-egging it. But the potential is reasonably clear, whether you are a politician, climate activist, or investor – a rare alignment.
For now, I notice that after a very sharp rally from April, in common with many metals, uranium has had a healthy correction. Looking at the Global X Uranium ETF, it went up 190% from April, and is now down 25% from that peak in mid-October. Be warned – such volatility, up and down, is commonplace. This fall has retraced 38% of the uptrend, a textbook size fall. This is no guarantee that the fall is over – I am sure there would be much more downside if US equities fell off a cliff…
So if this interests you, be sure you are comfortable with extreme volatility; have a very small holding, think of it as a learning experience; and be sure to have and apply your stop-loss.
Over the last week, Europe ex-UK and Brazil were ahead by 2.5-3.5% - remember, Brazil should be a considerable beneficiary of a multi-year uptrend in commodity prices. The NASDAQ index and UK were the laggards, down 0.5% at worst.
Gold and silver have bounced hard, up 8-10%. If they are early in a multi-month correction they should both turn down almost immediately. If they do not, the correction, such as it was, is already over.
Last but not least the S&P 500. Another update is due on this 5th June comment of mine:
“Some textbook calculations imply 6285-6774, upside of 6%-14% from today for the S&P 500. That is the framework within which we can monitor this key market in the weeks ahead”.
The index hit a peak around 6890 at the end of October, 1.7% above that range. Before a significant peak, my working assumption is still that there is a more notable but small correction ahead, before a final rally. Support is in the 6300-6400 range, 5% below where the index sits today. Many peaks have occurred in the Autumn, but historic peaks have also coincided with the end of the calendar year, such as 31st December 1989 in Japan, and the same day in 1999 with the FTSE 100 index. It would be a neat finale.