Very soon we will start to be inundated by volumes of research peering into 2026, many full of predictions which have little substance, and some of which are positively dangerous, encouraging complacency. Our time is better served focussing on themes and trends which can fairly be categorised as “the bleeding obvious” and which sit in plain sight.
Politicians tend to avoid austerity because it loses elections. This means that, all things being equal, governments have a bias towards “loose” policy, or stimulus, which might manifest itself as a mix of higher spending, lower taxes, and lower interest rates. The result should be more growth, but also higher inflation.
There would be more demand for commodities, such as metals and oil.
Such a growth environment would also be a boon for companies that make “stuff” – in contrast to the last 15 years, where too many quoted companies concentrated on financial engineering and lining the pockets of their executives.
Such stimulus is evident around the world today. China stands out, and the two leading candidates to become Japan’s next leader are promising lower taxes and more spending. There appears to be no end in sight to excessive US government spending, and much of this spills into the rest of the world, while Trump also wants interest rates sharply lower. It is a similar situation in Europe, but for France, where there is utter confusion, and the UK, where we all hope for some clarity in the November Budget – more on the UK in a moment.
This mix of stimulus, growth, and inflation creates a reasonably clear path for the winners in 2026, a number of whom are already doing well in 2025.
Starting with gold and metals and commodities generally. Gold tends to work well in an inflationary environment, the investing public are only recently on board, and central banks, led by China, are very likely to keep building their store of gold in preparation for a new world monetary order which isn’t dominated by the US dollar.
Metals generally benefit from a reflationary environment, higher growth and growing demand, and this at a time when stockpiles for many are low, and new sources of supply are limited (as for much of the last decade the big money chased financial engineering and gambling on the Emperor’s new clothes).
The potential for commodities goes beyond the usual candidates, particularly gold. For example, I set out the bull case for platinum on 13th June, since up by 30%. On 14th March I set out the bull case for silver and silver miners, now up 35% and 75% respectively. In coming weeks I will cover other metals, such as palladium and uranium, consider the opportunity in “uninvestable” oil, and see if there is anything to go for in agriculture, which has been wilting.
Another sleeve of winners is the equity markets which have been in bear markets for more than a decade e.g. China and Latin America, both of which are cheap, and showing clear signs of breaking out of their multi year doldrums.
The Value-style funds should also score in this evolving environment, spread across from financials to companies that make stuff, with many paying handsome and growing dividends. Our 6 monthly review of Value funds has just been updated, and you can find that here.
In a similar vein, Louis-Vincent Gave raised a possibility for which most global investors are totally unprepared.
Did you see the coming together of Xi, Modi, and Putin at the Shanghai Co-Operation Organisation meeting? This grouping has been around for 24 years, and this year something big happened, really big. Did you spot the literal coming together of Xi, Putin, and Modi, the hugs and smiles? This was clearly unscripted. For context, remember that there have been no direct flights between Delhi and Beijing, or Mumbai and Shanghai. Yet by the end of this jolly-up the usually taciturn Xi went so far as to proclaim that it is, “time for the dragon and elephant to dance together.”
LVG then invites you to consider the following:
· Russia is the world’s biggest commodity producer
· China is the only global manufacturing and industrial superpower…
· …and enjoys the cheapest cost of capital
· India has the biggest pool of cheap labour in the world
“Imagine you match the cheapest commodity producer with the cheapest capital goods, cheapest cost of capital. And the cheapest labour” says LVG.
Do you want an exposure to this powerful mix of multi-year positives, which have no representation in the much loved S&P trackers? Or do you wish to stick with a US stock market which is as over-valued, or more over-valued, than every other bubbly peak in financial market history? Do you understand how dangerous that bubble is to your financial well-being? LVG leaves you to go figure, as the Americans love to say. Oh and as an aside it is worth mentioning that all of this growing potential has been made possible by the idiot Trump.
What about Blighty? Ahead of the November Budget, the media gloom enveloping the UK stock market has continued to build. Last week it was the turn of The Economist under the headline “Britain is slowly going bust.” Policy support from the Government has undoubtedly been missing, to put it mildly. Yet it seems self-evident that unless Starmer and Reeves are planning an early retirement from political life, there will be enough in the next Budget to quieten the debt doomsters, and to encourage bottom-fishing in UK equities, particularly the medium and small cap companies which have lagged the more globally focussed FTSE 100 mega caps in 2025.
Pimco were also at pains to point out in recent weeks that they expect deeper interest rate cuts in the UK than generally expected, down to 2.75%, which would be a huge boost for domestic equities and is nowhere near discounted in UK equities at the moment.
We will be looking out for front running ahead of the Budget i.e. lurches upwards in the FTSE 250 and smaller company indices despite no public news. While on key dates in your diary, look out for the APEC meeting in Korea from 31st October when XI and Trump are expected to meet. Constructive and positive comments from one or both could light a fire under the potential for the asset classes mentioned earlier, starting with China.
Over the last week there was a broadly based advance by global stock markets. Europe, China, UK, US all advanced by more than 2%. Only Japan, India and Brazil were down a touch, and nothing obviously to worry about. It was a similarly advance in commodities, with silver, copper and platinum leading the charge, up 5-7%. Oil was an exception, taking a notable 6% hit.
Our "What's Hot, What's Not?" monthly look back is dominated by gold and metals, with some gains in excess of 20%. Do note that gold might be due a breather. As we mentioned in recent weeks, this could persist for a few months before the uptrend re-asserts itself. The sector-focussed edition is predictably topped by Commodities, but three sectors with heavy Asia exposures also impress.
Lastly, and lest we get complacent with all of this premature New Year cheer, let’s turn to the S&P 500. Richard E. reminded me that on 5th June I said:
“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”.
As I write the S&P sits at 6715, towards the top of that target range. I previously mentioned that I expected a small correction in the Summer, perhaps 5% down, before a final rally in the uptrend since April. That didn’t happen, and chart support is now in the 6300-6400 range, 5-6% lower. If a significant peak does lie ahead, my working assumption is that there is a wiggle or two ahead of us first.