Transcript
Amada Agati:
Happy New Year, friends! It’s time for the January edition of Adding Alpha! And, in the style of David Letterman, we’re counting down the “Top 10” most important investor themes of 2026.
10. is…Clarity on crypto regulation
Despite stablecoin progress in 2025, crypto investors enter 2026 still waiting for the CLARITY Act. Will most crypto tokens be deemed securities, commodities or something else entirely? Layers of ambiguity remain, from legal jurisdiction and money transmission to definitions and enforcement. Clarity is on the horizon (pun intended!), but it will likely arrive incrementally and unevenly across regions and asset types. Meanwhile, fundamentals like wallet adoption and transaction volumes are hitting new highs, and tokenization of real assets could be the next big thing.
9. Sustained valuation headwinds
Valuations remain elevated. The S&P 500’s forward P/E is nearly unchanged at 21.5x at the start of 2025 versus 22.0x at the start of 2026, despite an impressive 18.5% return for the index last year. With earnings growth expected to be >14% this year, we expect a similar scenario to play out relative to 2025, in which earnings are the primary driver of returns, not multiple expansion. In fixed income, our base case is for IG and HY spreads to remain tight, aka well-behaved, with them sitting just a few basis points off their respective 10-year lows as of this recording.
8. Artificial intelligence/automation/robotics innovation
AI innovation has evolved from chip makers to software and utilities powering the applications. The next leg should be tangible use cases beyond large language models, into things like hardware and robotics: think transportation, manufacturing and consumer services AI. For investors, this shift means greater efficiency enhancements and margin expansion potential, which we think should ultimately drive stronger earnings and equity values.
7. Capex-driven productivity gains
Capex growth has been strong, but highly concentrated in datacenters and renewables. Manufacturing remains in contraction, so a jump-start in capex beyond AI is critical for 2026. An underappreciated catalyst? The 100% bonus depreciation provision in last year’s tax bill. With a lagged effect, we expect this to feed directly into non-resi fixed investment activity, potentially leading to upside surprises for GDP growth forecasts in 2026 and beyond.
6. Solid fundamentals
We expect the disconnect between weak survey data and robust hard economic and earnings data to persist. Industrial Production growth has accelerated for three straight months, reaching its highest rate in more than 3 years, while sentiment remains negative, even as the S&P 500 hits new highs. Truly a testament to all the purple haze of policy uncertainty! Earnings growth is set for another strong year, with positive revisions continuing for 2026 and market leadership and participation broadening beyond the Mag 7.
5. A steeper yield curve due to deficits & debt levels
Deficits and debt levels are reshaping the yield curve. While the Federal Reserve has lowered rates by ~175 basis points since September 2024, the 10-year Treasury has increased by ~80-100bps. While Fed policy can typically influence the short end of the curve, the long end is being anchored higher by investor expectations for inflation, growth and risk. Translation: the bond market is not giving policymakers a lot of room in 2026.
4. Mid-term election year
While a lot can happen between now and the midterm elections this fall, betting markets currently indicate a change of control in the House of Representatives. A divided government, i.e., one in which the party in the White House does not retain majority control over Congress, tends to be the most favorable outcome for the market. Markets prefer gridlock as it limits the potential for significant policy surprises. While midterm years can be quite volatile, they’ve also delivered double-digit gains in the past. Buckle up!
3. Geopolitical tensions remain elevated
Geopolitics will be front and center for investors in 2026. Russia-Ukraine, the Middle East and recent events in Nigeria & Venezuela add to uncertainty. While markets can react sharply to these types of conflicts, unless global oil production is materially disrupted, history has shown that they can recover quite quickly.
2. More accommodative monetary policy tools
While it looks like we are nearing the tail end of the rate cutting cycle and that one or two 25-bps cuts may not sound very “accommodating” on a relative basis, we expect the Fed to utilize other tools in its policy toolkit to drive further accommodation in 2026. Examples include quantitative easing to help manage short-term financial market liquidity, tilting its balance sheet mix in favor of shorter-term Treasury holdings and away from mortgage-backed securities, as well as offering more dovish forward guidance. A new Fed chair in 2026 will likely be viewed as more dovish by markets too.
Drum roll please….and the #1 most important driver for markets in 2026 is:
U.S. Fiscal Policy Uncertainty
From the looming debt-ceiling deadline early this year to unresolved federal budget and appropriations that could trigger another government shutdown to infrastructure funding, to tax policy and a Supreme Court ruling on tariffs/trade policy, there’s no shortage of potential for policy changes to create material uncertainty for global markets.It may still feel like a purple haze of uncertainty now, and in that way, the song remains the same, but as we trek through 2026, we expect the haze to lift, revealing nothing but blue skies for investors!
Bottom line: Focus on the underlying rhythm. The same enduring drivers are shaping opportunities. Stay disciplined and nimble. Tune out the noise, turn up the volume and listen to the melody that endures.
