Stock Market & Economic Commentary - January 2026

“It is not the strongest of the species that survives, nor the most intelligent; it is the one that is most adaptable to change” – Charles Darwin (1809-1882), Naturalist and biologist, famous for developing the theory of evolution by natural selection.

“Trump tamatigut qunutittarpoq”

2026 has started with something of a bang, with US President Donald Trump once again generating the headlines. World power and foreign policy are being reshaped by the US commander-in-chief following the dramatic capture of Venezuelan President Maduro in Caracas, the seizure of a Russian ship in the Atlantic and his apparent determination to incorporate the country of Greenland within the sovereignty of the United States. American intervention, military and/or diplomatic, to bring about a regime change in Iran is also high on President Trump’s wish list, whilst the future of the Chagos Islands has once again been thrown into doubt.

The world’s future, not least its economic future, is once again at the mercy of the unpredictable whims of the president of the world’s leading superpower.

Although a teetotaller, Mr Trump has an alcoholic’s personality, according to Susie Wiles, his chief of staff. Addictive personalities tend to be compulsive risk takers. Doing what makes you feel good suspends the pain, and with his popularity ratings waning at home, throwing his weight around on the international stage may help to improve his home standing in time for the mid-term elections later this year.

This is obviously a big moment for the international rule-based order and for the alliances within it, but for financial markets, it is business as usual. The World Bank’s new Global Economic Prospects provides a clarifying view of the recent past. It notes: “The global economy has shown remarkable resilience to heightened trade tensions and policy uncertainty. Last year’s faster than expected pace of growth capped a recovery from the 2020 recession unmatched in six decades.”

The IMF’s World Economic Outlook is also comforting. It says “global growth is projected to remain resilient at 3.3% in 2026 and 3.2% in 2027, rates similar to growth in 2025.”

Global economic indicators such as GDP growth, employment, and investment remain reasonably healthy, supported by increased AI infrastructure, defence spending and civil infrastructure investments in Europe. In the background, but the foreground for seasoned investors, global liquidity remains high. This has been the driving force behind moves in gold and silver and stock markets in general.

Once again, markets are giving Trump a pass. “Trump tamatigut qunutittarpoq” or TACO in Greenland speak holds sway, with investors shrugging off the US President’s neo-imperialist adventures and his challenge to Nato allies. The consensus seems to be that the Trump era, albeit full of noise, is “a tale told by an idiot, full of sound and fury, signifying nothing”.

The case for shoving cotton wool in your ears and refusing to watch the Donald Trump show, now in its spectacular second series with zany new script writers, is simple; it is just too exhausting. But for money managers, it is also largely pointless. After a mild panic, stock markets are now back to square one. Or at least that is the case as I write!

Trump bowed to reason at Davos, though further damage to the transatlantic relationship has undoubtedly been done. Herein, there is a sense that the US is looking like a very unreliable friend and partner through European eyes. As Russia laughs on from the sidelines, there could be material longer-term geopolitical consequences from recent events. With the US potentially trying to legitimise a land-grab in the North Atlantic, this helps lend legitimacy to Putin’s stance in the Donbas, or, for that matter, Beijing’s ambitions for Taiwan.

Yet for now, financial markets are relieved that the risks seem to have been contained. In this context, the economic outlook has not changed much, and stock markets can focus on things that really matter, interest rates, economic growth, corporate earnings, and valuations.

10 themes for 2026

“The day you plant the seed is not the day you eat the fruit” – Fabienne Fredrickson, international business mentor, speaker, and founder of Boldheart and the Client Attraction System, known for helping entrepreneurs – especially women – grow thriving, freedom-based businesses through a blend of strategy and mindset.

All the experts opining on what the year ahead holds can make fascinating reading, but it is wise not to place too much weight on it. However, accepting that predicting next week, let alone the next 12 months, is challenging, here are 10 themes for 2026:

Global growth is expected to chug along at around 3.3%, much the same as in 2024 and 2025. Emerging and developing market economies will grow at roughly twice the rate of the advanced Western economies.
This should be another good year for the US, with GDP growth of around 2.5%. President Donald Trump’s One Big Beautiful Bill, which passed into law last July, will deliver sizeable tax cuts for US consumers and provide a boost to consumption. Oil prices are likely to fall again this year, acting as another engine for growth. And a new, and probably more dovish Federal Reserve chair, due to be announced by Mr Trump in May, is likely to keep cutting US interest rates, adding to the stimulus provided by sizeable rate cuts over the last 15 months.
There will continue to be much fretting about the risk of a dotcom-style bust in US AI stocks. But with interest rates falling and much of the tech spending funded from corporate cash, this does not seem to be the most likely outcome. That points to another year of strong AI-driven tech spending in the US.
What could spoil this rosy picture? Apart from a meltdown in AI stocks, we should watch out for further increases in unemployment and the risk of higher inflation, courtesy of loose fiscal and monetary policy and tariffs. The recent rise in Japanese bond yields is also testing investors’ nerves.
Germany will break out of its low-growth torpor. The German economy has gone nowhere for more than three years, at a time when other advanced economies have been growing. The energy shock of 2022–23 hit Germany hard, compounding the woes of the auto sector as it wrestled with the transition to EVs and competition from China. But things are looking up. In a historic move last year, one that required a change to the country’s constitution, Germany’s coalition government agreed on a huge package of spending on defence and infrastructure. That spending will kick in this year, lifting capital investment and industrial output, which have been in decline in the last two years. 2026 is likely to be the first year of material growth for the German economy since 2022.
Oil prices will drift lower. Weak global demand and the substitution away from oil in power generation are colliding with excess output, especially from non-OPEC producers, including the US and Brazil. OPEC does not seem to have an appetite for making deep production cuts to bolster the oil price. Meanwhile, cheap energy is a signature policy of the Trump administration – and a political imperative ahead of November’s mid-term elections. The price of Brent crude has halved since mid-2022, recently trading at less than $60 per barrel. A modest downward drift to as low as $55 seems likely this year.
AI will become increasingly apparent in business. For all the ballyhoo about investment into tech and data centres in the US, businesses outside the tech sector seem to be struggling to get value out of AI. An MIT survey last August found that AI pilots were falling short of expectations in 95% of firms surveyed. Unsurprisingly, the returns from a tidal wave of investment into AI have so far been small – around $50 billion a year, according to The Economist. The head of the IMF told the World Economic Forum in Davos that she expects 60% of jobs in advanced economies to be “either enhanced, eliminated or transformed” by AI. “We are headed for a future of amazing abundance”.
Immigration into Western countries will weaken. Immigration into the US and Europe has fallen sharply in the last year, in part reversing the increase that took place in the wake of the pandemic. Political choices have played a big role. The EU and governments in most EU countries, as well as the UK, the US, Canada, and Australia, have tightened immigration rules in the last year. With immigration featuring as a prominent concern for many voters, levels of migration into Western countries are predicted to fall in 2026.
Hybrid warfare will expand and diversify. The period since Russia’s invasion of Ukraine has witnessed a rising level of cyber-attacks, sabotage, disinformation and economic coercion by Russia against European countries. Tactics include disrupting air travel by flying drones near airports, cutting undersea cables and arson attacks on defence sites. Other countries, including China, North Korea, and Iran, have developed their own capacity for hybrid warfare, particularly through cyber-attacks. China has stepped up its incursions into Taiwanese airspace and waters and mounts large-scale exercises practising for a full invasion of the island. So-called grey zone warfare enables countries to further their strategic aims without the risks of full-scale warfare. It is an established tool of policy – and one that is increasingly likely to impinge on daily life in the West.
Levels of government debt will rise. Four years on from the end of the pandemic, Western governments are still borrowing on a grand scale. The US is funding increases in public spending and tax cuts through higher borrowing. Over the last 25 years, the UK government has had to borrow to meet current spending – on wages, welfare and so on – in all but two years. Last year, Germany changed its constitution to allow unlimited debt-financed spending on defence. Most Western countries will run deficits this year, and some, like the US and UK, are likely to do so until the end of the decade. Levels of government debt will keep rising – and bond markets will keep worrying about how this long borrowing binge will end.

Staying diversified, staying global, staying invested

“The one fact pertaining to all conditions is that they will change” – Charles Dow (1851 – 1902), American journalist, economist, and creator of the Dow Jones Industrial Average index in 1896 – a stock market index that became one of the world’s most widely followed measures of market performance.

Global markets are moving through a period of rapid change. The post-financial crisis environment of low rates, easy liquidity and smooth globalisation has given way to higher structural inflation, large government debts, and more fragmented trade. Policy decisions, geopolitics, and capital flows now matter as much as traditional economic cycles. For investors, this means a wider range of potential outcomes, faster-moving shocks and a greater premium on liquidity, resilience, and clear scenario planning.

At the same time, as the recovery from the pandemic tells us, the world economy has great momentum: it has grown substantially in almost every year since 1950. Important innovations come at pace, not just in the US but also elsewhere.

Almost all major equity markets outperformed the S&P 500 in 2025, both in local currency and USD. The broadening out of markets in 2025 was a key theme that helped regionally diversified portfolios, though the dominance of US growth stocks cannot be ignored.

A globally diversified portfolio avoids relying on any single economy or theme. Different regions are progressing through the cycle at different speeds. Factor diversification also matters because markets are no longer rewarding a single style in a straight line. Leadership has rotated between growth, value, momentum, and quality, which means portfolios anchored to one factor alone have seen more pronounced swings. Adding alternative active managers gives further insulation during periods of sharp market moves.

The Clarion Portfolio Funds maintain an underweight position to the Magnificent Seven relative to the global benchmark (MSCI ACWI). The Funds are a good example of holding ample US exposure whilst retaining a global mindset. This gives us exposure to their structural growth without relying on them exclusively. It also frees up capital to allocate to areas where valuations and long-term return potential appear more compelling.

We can’t promise a completely smooth ride, but we believe the Clarion Portfolio funds are well placed to achieve your long-term objectives whilst being insulated from big market falls in any one single market.

Stay diversified, stay global, stay invested

As always, we thank you for your continued support, and we look forward to updating you regularly throughout 2026. Please get in touch if you have any questions.

Please click here to access The Clarion Investment Diary for December with full details of the Clarion Portfolio Funds.

Keith W Thompson

Clarion Group Chairman

January 2026

Creating better lives now and in the future for our clients, their families and those who are important to them.

Risk Warnings

Any investment performance figures referred to relate to past performance which is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments, and the income arising from them, can go down as well as up and is not guaranteed, which means that you may not get back what you invested. Unless indicated otherwise, performance figures are stated in British Pounds. Where performance figures are stated in other currencies, changes in exchange rates may also cause an investment to fluctuate in value.

The content of this article does not constitute financial advice and you may wish to seek professional advice based on your individual circumstances before making any financial decisions.

Stock Market & Economic Commentary – January 2026