Balancing Risks and Rewards
As 2025 draws to a close, global markets have demonstrated resilience amid persistent uncertainty. Despite trade tensions, geopolitical risks, and inflationary pressures earlier in the year, economic activity has held steady. Global GDP growth is projected to be around 3.0% for 2025, supported by front-loaded fiscal measures, easing tariff impacts, and robust consumer spending in key economies. Inflation has moderated across most regions, though it remains above target in the U.S., keeping monetary policy paths in focus.
Looking ahead to 2026, the outlook is cautiously optimistic. Analysts expect global growth to edge up to 3.1 – 3.2%, driven by lower interest rates, fiscal support, and ongoing investment in transformative technologies such as AI. The U.S. economy is forecast to rebound after a mid-cycle slowdown, while China maintains growth near 4.5 – 5% on the back of policy stimulus. Europe may lag due to manufacturing headwinds, but emerging markets show improving fundamentals.
Global markets enter 2026 with cautious optimism after a strong multi-year rally. While valuations remain elevated and risks persist, moderate monetary easing should provide support. We expect the Fed to implement one or two 25 bps rate cuts in the first half of the year, followed by a stable phase with limited scope for further reductions. The ECB is also likely to cut rates once or twice, helping European markets maintain resilience. Equity markets could see an initial pullback, particularly in the U.S., before reaching new highs, supported by solid corporate fundamentals and ongoing investment in technology. Although the AI-driven rally may cool and valuations compress, this adjustment is unlikely to derail the real economy. Currency markets should remain relatively stable, with EUR/USD trading between 1.10 and 1.20 before a gradual decline. Beyond U.S. mega-cap tech, attractive opportunities exist in European and Asian equities, especially in dividend-rich and mid-cap segments. Overall, 2026 promises a m
GLOBAL ECONOMY
The global economy has performed surprisingly well in 2025, despite the tariff shock and immense policy uncertainty that surrounded it. Resilience has been displayed across advanced and emerging economies alike. Looking ahead, global growth is likely to dip in 2026 – to 3% from 3.4% this year – but underlying momentum should stay robust through the year.
USA
Many market participants expect 2026 to be a favorable year for U.S. equities and the broader economy. Growth is projected to range between 2% and 2.5%. Wage pressures are unlikely to increase and may even ease, which could help inflation decline further. This scenario would give the Federal Reserve room to lower interest rates, providing additional support to economic activity and financial markets.
Higher tariffs are driving up import costs. So far, the pass-through to consumers has been limited, as companies have absorbed much of the pressure through margin compression. Overall, tariffs are adding an unwelcome upward push to prices, but the more significant impact is on corporate profitability – making cost control a priority and dampening hiring activity.
The Federal Reserve aims to avoid a recession, as high debt levels could quickly turn one into a credit crisis. With limited monetary room to absorb major shocks, the Fed’s stance appears to favor providing slightly more support rather than too little – even though inflation remains above target at around 3%, making tighter policy seem logical on paper. This explains why markets are pricing in further rate cuts.
It’s a delicate balance: stimulating the economy while inflation is elevated risks fueling price pressures, pushing long-term interest rates higher and causing policy to overshoot. The Fed emphasizes that current rates are still restrictive; lowering them would reduce that restriction rather than immediately stimulate growth.
The Fed also expects the economy to return to full capacity within a few quarters. From that point, rates could be held at a neutral level – estimated by many at around 3%, compared to just under 4% now.
Europe
Two key factors will shape the euro-area’s medium-term outlook. First, President Donald Trump’s trade policies remain the primary headwind. While the bloc has shown resilience so far, the full effect is still ahead, as tariffs are only gradually translating into higher U.S. consumer prices.
Second, Germany’s significant increase in defense and infrastructure spending is expected to cushion some of that drag, though uncertainty persists around how quickly this fiscal stimulus will take hold.
Germany’s economy is expected to accelerate in 2026, with increased infrastructure and defense spending lifting growth to 0.8%. This marks a notable improvement from the 0.3% expansion projected for 2025, when U.S. tariffs begin to weigh more heavily. On the expenditure side, the fiscal boost should translate into stronger public consumption and higher public and private investment. Export performance, dampened by U.S. tariffs, is likely to recover only gradually.
Spain’s economy defied expectations again in 2025. Real GDP grew by an annualized average rate of 2.7% in the first three quarters of the year – far above the 0.7% recorded for the rest of the euro area. Booming migration remains a key part of Spain’s success story, supporting fast gains in household spending. The country’s relatively limited exposure to US demand means it’s less vulnerable to the drag from higher US tariffs than its peers. Investment has also been a tailwind, as the rollout of the€80 billion in EU recovery grants speeds up. Those same factors will continue to drive growth in 2026.
Italy, by contrast, has felt the brunt of U.S. tariffs, with economic weakness evident over the past two quarters. The EU – U.S. trade deal represents a notable setback for Italy, one of Europe’s largest exporters to the American market. Even so, growth should hold up, supported by a gradual recovery in domestic demand and EU-funded investment under the National Recovery Plan, scheduled for completion by mid-2026.
All this points to a scenario of continued lower growth, but also inflation that is likely to be below rather than above the 2% target. Markets therefore do not expect interest rates to rise until 2027, and possibly further rate cuts before then. The climate therefore appears favorable for shares and bonds for the time being.
Asia
After the pivot to looser macro policy in late 2024 and the trade-war turbulence of 2025, 2026 could prove to be a calmer year. Domestic challenges such as the property downturn and deflation driven by fierce competition will persist. Beijing is expected to maintain a floor under growth but is unlikely to introduce another round of large-scale stimulus.
That does not make 2026 insignificant. A more stable global backdrop would give policymakers room to address structural issues as the 2026 – 2030 Five-Year Plan begins. If the acute supply-demand imbalance is left unresolved, it could weigh heavily on growth and risk reigniting trade tensions. How the government chooses to support demand will be critical in determining whether private sector confidence and entrepreneurial momentum return to drive organic growth.
The Bank of Japan enters 2026 with a dovish bias. Inflation remains firm, and Prime Minister Sanae Takaichi’s pro-stimulus administration continues to pressure the central bank to maintain support. We expect the BOJ to raise rates only gradually, reaching 1% by the end of 2026 from 0.5% currently. This slow pace will keep the yen under pressure. A weaker currency and elevated price expectations should keep inflation above 2%, squeezing households with limited income growth, including pensioners. Takaichi’s growth-oriented fiscal stance will underpin both public and private investment, but if voters perceive tolerance for high inflation, political risks could rise.
We anticipate the BOJ will lift its policy rate to 0.75% in December and deliver another 25-basis-point hike by mid-2026. Consumer price inflation is projected to ease to 2.3% in 2026 from 3.2% in 2025. Growth, however, looks set to slow to 0.7% from 1.2% in 2025 as household consumption softens. South Korea’s economy is recovering from a period of political instability, and growth momentum is strengthening. A stronger-than expected global AI boom is set to drive demand for semiconductors, a key export, providing a significant boost to growth. Improved sentiment – supported by rising equity prices—will help consumer spending rebound, while a substantial increase in fiscal expenditure under the Lee Jae Myung administration will further support domestic demand. Nevertheless, challenges remain. Higher U.S. tariffs will continue to weigh on exports and curb capital investment, while strict enforcement of the Serious Injury Law and rising import costs due to a weaker won could delay a recovery in construction act
EQUITIES
November proved to be a turbulent month for global markets, as optimism over a potential Federal Reserve rate cut clashed with concerns about an AI-driven bubble and mounting corporate debt.
In the United States stocks staged a late-month rally that pushed major indices near record highs, reversing midmonth losses. The S&P 500 ended the month with a modest 0.1% gain, while the Dow added 0.3%. The Nasdaq, however, fell 1.5%, marking its first monthly decline since March. Tech stocks bore the brunt of volatility amid fears that massive AI-related capital expenditures, funded by heavy debt issuance, may not translate into profits quickly enough. Nvidia’s stellar earnings failed to calm nerves, while Google stood out with a 14% surge thanks to major strides in AI development.
European equities were largely flat to slightly positive. Germany’s DAX slipped 0.5%, while Switzerland’s SMI outperformed with a strong 4.9% gain. In Asia markets posted their first monthly decline in seven months. The MSCI Asia Pacific ex-Japan index fell 3.1%, Japan’s Nikkei dropped 4.1%, and South Korea’s Kospi remained volatile amid tax policy changes and currency weakness. Despite the turbulence, investor sentiment improved toward month-end as dovish Fed signals fueled expectations of a December rate cut. Positioning looks cleaner after midmonth corrections, and some investors see the tech-driven pullback as a healthy reset for valuations. With the Fed in focus, markets are cautiously optimistic heading into December, eyeing a potential year-end rally.
U.S. equities are expected to deliver decent but selective gains in 2026. Lower interest rates, steady economic growth, and AI-driven productivity improvements should support earnings. The Federal Reserve’s more accommodative stance creates a favorable backdrop, with consensus forecasts placing the S&P 500 between 7,500 and 7,800 by year-end, and some bullish scenarios even higher if rate cuts accelerate and earnings broaden beyond mega-cap tech. While technology remains a key driver, leadership may shift toward cyclical sectors and smaller caps as fiscal support persists. Despite the constructive outlook, several risks could trigger market pullbacks. U.S. equities trade at elevated valuations, leaving little margin for error if earnings disappoint. As a result, setbacks are likely to hit harder than windfalls. Heavy AI-related capital spending funded by debt raises questions about monetization and sustainability.
European equities look set for modest but improving performance. Monetary easing and fiscal stimulus, including Germany’s infrastructure and defense spending program should underpin growth. The Euro STOXX 50 is projected to rise toward 5,700–6,500, while the STOXX 600 could approach 570, reflecting gains of roughly 5–10%. Valuations remain attractive compared to U.S. stocks, and sectors tied to technology, defense, and infrastructure offer opportunities. However, progress will be gradual, and political uncertainty in France and trade tensions with the U.S. could weigh on sentiment.
Japanese equities are expected to maintain a constructive tone in 2026 after a strong 2025, supported by corporate governance reforms, steady buybacks, and an expansionary fiscal stance under Prime Minister Sanae Takaichi. Earnings breadth should improve beyond AI and semiconductors as domestic demand stabilizes and governance continues to unlock capital efficiency. Forecasts suggest the Nikkei 225 could advance further, while TOPIX remains supported by index reforms and liquidity. However, risks are significant: if the Bank of Japan misjudges inflation and tightens policy too quickly, valuations could compress, while remaining overly dovish risks entrenched inflation and higher long-term yields. Yen volatility adds another layer of uncertainty, as prolonged weakness may erode household purchasing power and damp consumption, while sharp rebounds could reverse export tailwinds. Rising Japanese government bond yields or disorderly shifts in yield-curve expectations would challenge equity multiples and increase funding costs. External shocks such as renewed tariff frictions, technology restrictions, or regional geopolitical tensions could hit earnings and sentiment, and structural changes to the TOPIX index in late 2026 may cre
Chinese equities, meanwhile, are forecast to deliver moderate gains in 2026 after a strong rebound in 2025, driven by policy pivots toward innovation and selective easing. Growth themes include electric vehicles, batteries, and automation, aligned with Beijing’s long-term strategy to lead in high-end manufacturing and technology. Index targets cluster around modest upside for MSCI China and CSI 300, with wider gains possible if AI monetization and domestic demand accelerate. Yet risks remain substantial: persistent property market weakness could suppress confidence and weigh on banks, while deflationary pressures from excess capacity and intense competition threaten margins. Policy calibration is another concern, as Beijing is unlikely to launch mega-stimulus, and incremental measures may underwhelm if private confidence stays weak.
BONDS
At present, we see little reason for the ECB to cut rates further. While Germany’s weak economy could benefit from additional easing, the broader eurozone is performing reasonably well, and growth is expected to gradually improve with fiscal stimulus and already lower rates. However, competitiveness losses, U.S. trade uncertainty, and tariffs are weighing on confidence, trade, and investment. If growth fails to pick up, one or two additional rate cuts remain possible, though this is not our base case. A sharp euro appreciation could also trigger a cut, but that scenario is less likely. Rate hikes are unlikely before 2027. For now, we expect 10-year German Bund yields, currently around 2.77%, to fluctuate between 2.6% and 2.9%, with scope for an upward trend later in 2026 as growth accelerates, inflation rises, public finances deteriorate, and U.S. rates move higher.
The Fed currently favors caution over tightening, making an additional 25-basis-point cut in February or March likely. Later in the year, the discussion could shift toward rate hikes if wage growth accelerates amid a tight labor market and tariff uncertainty fades, pushing inflation higher. U.S. potential growth is assumed to remain below 2% due to demographic trends, increasing the risk of overheating if growth exceeds that level. While the Fed may eventually need to act against inflation, it is expected to do so less aggressively than in a traditional scenario to avoid sharp asset price declines and fiscal stress, which could make rising inflation the “least bad” option and gradually lift long-term yields. For now, the 10-year Treasury yield, currently around 4.1%, is likely to fluctuate between 3.95% and 4.25% before trending higher – first toward 4.5%, then 5%, and possibly beyond—driven by fiscal concerns, weaker foreign demand, and global rate dynamics.
COMMODITIES AND CURRENCIES
2025 proved to be a highly volatile year for several commodities. Precious metals such as gold, silver, and copper surged to record highs, while oil prices plunged at times to their lowest levels in four years. The Bloomberg Precious Metals Index advanced by more than 50% during the first ten months of the year, and base metals posted average gains of around 15%. In stark contrast, energy commodities barely managed an increase of about 2%.
Despite minor corrections in precious metals since mid-October, the bullish trend appears far from over. Key drivers remain intact: U.S. interest rates are expected to continue their downward trajectory, uncertainty surrounding the Federal Reserve’s future independence and the resilience of the U.S. dollar persists, and U.S. trade policy is likely to deliver further surprises in 2026. These factors should continue to underpin demand for gold and other safe-haven assets.
Base metals are also poised to maintain their upward momentum in the coming year. Structural demand growth, fueled by the global green transition and accelerating investments in artificial intelligence, will likely support prices. Supply-side constraints, particularly in copper mining, have further tightened the market in recent months, amplifying the bullish outlook.
Conversely, the outlook for oil remains subdued. Global economic weakness is expected to keep demand in 2026 at similarly low levels as this year. Adding to the pressure, OPEC+ has significantly ramped up production since April 2025, prioritizing market share over price stability. This aggressive supply strategy points to a substantial surplus in the oil market next year, leaving little room for price recovery. While this scenario benefits consumers, it poses a considerable challenge for OPEC+.
Source: www.bendura.li
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein