Reading the Macro Signals Shaping 2026

The opening quarter of 2026 has confirmed much of what our strategists anticipated at the end of last year. Central banks across developed markets are holding their ground against lingering inflationary pressure, services inflation in particular is cooling unevenly across regions, and investors are being forced to reconsider the true cost of capital in a world that no longer subsidises risk-taking with cheap liquidity. The tone of client conversations has shifted noticeably over the past three months. Where questions in 2024 focused on when rates might fall, questions today are about what to do when they stay where they are for longer than expected.

Rates and the new normal

We have moved past the era of free money, and the adjustment is still working its way through asset prices. Our base case assumes that policy rates across major economies stay restrictive well into the second half of 2026, with cuts arriving later and more gradually than current market pricing implies. The implication for asset allocation is significant. Duration no longer comes for free, leverage is being repriced in every corner of the capital structure, and business models that depended on perpetually falling discount rates are being tested in ways they have not been tested for a generation.

This environment is not inherently hostile to investors. It is, however, deeply unforgiving of assumptions carried over from the previous cycle. Quality of earnings, strength of balance sheet, and pricing power now matter in ways that were easy to overlook when capital was abundant and cheap.

Where we see opportunity

• High-quality investment grade credit continues to offer attractive all-in yields with manageable duration risk and strong fundamentals across most issuers
• Selective developed market equities with resilient balance sheets, defensible margins and a demonstrated ability to pass through costs
• Real assets including core infrastructure and prime real estate as a structural hedge against persistent services inflation
• Short-duration sovereigns as a liquidity reserve that now pays investors to wait for better opportunities elsewhere

What we are avoiding

We remain cautious on long-duration growth equities priced for perfection, on lower-tier high yield credit where spreads do not compensate for default risk, and on leveraged strategies whose performance depended on the cost of funding staying near zero. The mistake in this environment is to assume that recent underperformance in these areas represents a buying opportunity rather than a structural reset.

Patience in portfolio construction is rewarded when volatility is mispriced as risk.

The quarters ahead

The coming quarters will reward investors who resist the temptation to chase short-term narratives and instead focus on durable cash flows, disciplined position sizing, and a clear-eyed view of what the next cycle will genuinely require. The opportunity set is arguably wider than it has been in years. It simply demands a different kind of attention than the one most portfolios were trained to give.