Global Macro Commentary – Jan 2026

Key Takeaways

• 2025 recap: central‑bank easing into year‑end lifted equities—US ~+18% and non‑US ~+30%—with sentiment still fragile and markets driven by momentum/gamification.

• Base case: stagflation and dollar debasement in 2026 amid policy/geopolitical uncertainty; historically challenging for traditional stocks and bonds with expectations for below‑average 10‑year returns.

• AI theme broadens beyond the “Mag Seven,” but elevated valuations and heavy capex temper confidence; watch selective productivity gains and rotate toward lower‑valuation areas.

• Cyclical/structural opportunities: energy and infrastructure (fossil + renewables), healthcare (aging demographics), and materials/mining tied to electrification; selective themes in water infrastructure and quantum computing.

• Fixed income: prefer high quality, short‑to‑intermediate duration, avoid reaching for yield, keep TIPs for sticky inflation/tariff pass‑through, and emphasize active issuer selection.

• Alternatives: prioritize liquid, non‑correlated exposures—actively managed commodities, gold, and selective tangible assets/crypto—over private equity/credit/real estate proxies.

• Portfolio stance: global quality tilt with increased overseas/emerging exposure, balance mega‑cap concentration via equal‑weight/multi‑factor/quality mid‑caps; in credit favor quality over duration; maintain opportunistic overweights in materials and innovation tied to AI/energy and aerospace & defense.

Global equity markets finished 2025 with strong, above-average double-digit returns, especially in overseas markets. A shift toward central bank easing in December pushed equity returns higher, with domestic equities up nearly 18%, and non-US stocks up over 30% for the year. As usual, all sell- and buy-side investment firms issued their forecasts for 2026, with most expecting double-digit gains based on expected strong earnings. One should be skeptical on several fronts:

1. Forecasting one-year returns is folly - history will oblige,
2. Agency risk is prevalent; no one is going to risk going against the crowd and risk their job status, and
3. Recency bias also plays a role in momentum thinking.

Despite this, there is probably some momentum in earnings strength in equities, even outside the Magnificent Seven, as investors look to lower valuation levels across the rest of the S&P 493 stocks with the potential for earnings gains.

There remains a high level of political and geopolitical uncertainty as pressures mount on the Fed to lower interest rates and government spending accelerates to unsustainable levels. Political pressure to move in this direction will only increase the pain of higher inflation and stagnate economic growth in the months ahead. This leads us to maintain our base case view of stagflation and dollar debasement in the months ahead. Historically, this scenario has not generally been friendly to stocks or bonds.
Even though we do not know what the outcomes will be 12 months from now for stocks, bonds, or commodities, we do know from history and experience that initial valuations and yields are good indicators of the average outcome over the next 10 years. Based on this, the odds favor below-average returns across the spectrum of stocks and bonds.

Even though many investors have financial objectives that are 10 years out, most do not have the emotional patience to ride out the interim volatility. As market returns vary over time, we must understand the economic regime we are currently in and where we are likely headed to diversify for these changes properly.

EQUITIES

Investors continue to make a big bet on AI and AI infrastructure, but a slight shift has occurred, with attention shifting away from Mag Seven and toward the rest of the market. Higher market valuations and concerns about future payoffs for these top 7-10 companies, which have invested record amounts of capital in AI infrastructure, prompted investors to realign their focus elsewhere.

Following where capital is flowing is always a good indicator of where to invest if there is clarity to a future payoff within a reasonable time. It is still not clear how big an impact AI will have on future economic output and when. However, there are signs that the rapid pace of AI is contributing to higher productivity gains, but it’s still too early in the game to know if this is sustainable.

Energy demand and global uncertainty suggest that demand for energyrelated infrastructure buildout, including fossil fuels and renewables, is rising, and that investments in this area make sense. Also, the graying population and the need for better healthcare will create future opportunities in the medical and healthcare industries.

Mining for raw materials, industrial & precious metals, also plays into the increasing demand for electrification and higher energy demand. In addition to water infrastructure and quantum computing, select investments in these areas are worth investigating.

FIXED INCOME

Bond markets have provided ballast to diversified portfolios, delivering solid returns without taking on excessive credit or duration risk. We continue to position bond portfolios with a bias toward high quality and short-to-intermediate duration. With stagflation as our base case, we would also continue to advocate a position in TIPs, as inflation is likely to remain sticky or even rise as the full effect of tariff pass-through is felt at the household level. With heightened volatility, we also suggest active issue selection on the credit side.

ALTERNATIVE ASSETS

The primary focus for alternative exposure is on liquid non-correlated assets. This does not mean private equity, credit, or real estate. These assets, even though less liquid and transparent than their publicly traded counterpart, are still equity, credit, and real estate assets and, over the longer term, behave as such. Even so, there is a place for private holdings as they are now becoming the bigger opportunity set for investors. Given current events and where we are in the business cycle, the most incredible opportunity lies in actively managed commodities, precious metals, tangible assets, and other assets that could help offset the US dollar’s ongoing debasement.

MARKET PERFORMANCE AS OF DECEMBER 31, 2025

Valuations - Cautious

U.S. equity market valuations remain elevated, driven by the significant performance gains of the past few years among the top 10 cap-weighted stocks. Even though the markets are trading at valuation multiples that place stocks in the top percentile for “richness,” several of these companies have delivered superior earnings and profit margins. The recent change in how to watch these market leaders is the shift from funding AI expansion with free operating cash flow to borrowing to fund expansion that may not result in higher growth anytime soon. Valuations are also rich in the small-cap sector, as earnings have been pressured by limited access to capital and overshadowed by the mega players.

Earnings - Favorable

Earnings have delivered for many of the mega tech companies, and now hopes are that this will broaden out to the rest of the market. Fairly attractive interest rates and expectations for further stimulus are boosting earnings growth expectations for 2026. Short-term earnings momentum may dominate, but we are not confident this trend can continue, as job market numbers are weakening and consumer sentiment continues to decline amid job uncertainty.

Macroeconomic - Neutral

There are clear indicators that economic growth is moving lower in the US. The most significant contributor to economic output, the consumer, is confronted with a stagnant job market and slightly lower real wage growth. In addition, there has been little movement in the housing market due to affordability issues triggered by higher mortgage rates, and those with locked-in lower mortgage rates who cannot afford to sell and refinance. This has capped household mobility and dampened growth. The ‘K” economy is a reality, and the top 10% of wealth continues to prop up the US economy. Price inflation in everyday household items and services has also capped consumption.

Economic & Geopolitical Risks - Cautious

It's hard to remember a period in history when there has been so much uncertainty at home and abroad. Institutions, the legislative process, and the rule of law are being tested globally. Despite this overhang, continued strides in innovation have pushed economic progress forward, with fewer people living below the poverty line. Financial markets have been resilient to such chaos before, and now there are better checks and balances in the banking and financial services sector that provide a backdrop of stability.

Technical/Sentiment - Cautious

Consumer sentiment has wavered amid rising housing affordability and elevated prices for goods and services. This view may not change anytime soon unless there is emerging evidence of economic turnaround and political stability ahead. Market sentiment has been driven mainly by animal spirits and the gamification of public markets, rather than investment fundamentals. This has now extended into a rapid rise in prediction markets and pure gambling. Many market participants have yet to experience a 30% extended drawdown. Let’s see when this happens and if “buy the dip is still the rallying call of the day.

DISCLOSURES

The statements herein are based upon OAR Financial LLC's (OAR Financial) opinions and the data available in the publication. They are subject to change at any time without notice. This communication does not constitute investment advice and is for informational purposes only. It is not intended to meet the objectives or suitability requirements of any specific individual or account. It does not guarantee that any model's investment objective will be met. An investor should assess his/ their investment needs based on his/ their financial circumstances and investment objectives. Neither the information nor any opinions expressed herein should be construed as a solicitation or a recommendation by OAR Financial or its affiliates to buy or sell securities or investments or hire any specific manager.

OAR Financial prepared this Update utilizing information from a variety of reliable sources, including, but not limited to, custodians, mutual fund companies, investment managers, Morningstar, Bloomberg, other third-party service providers, and, in some cases, as directed by the client or their representative.

It is important to remember that risks are inherent in any investment and that there is no assurance that any investment, asset class, style, or index will provide positive performance over time. Diversification and strategic asset allocation do not guarantee a profit or protect against a loss in a declining market.

Past performance is not a guarantee of future results. All investments are subject to risk, including the loss of principal. Portfolio positions referenced are subject to change at any time; your portfolio may not reflect the information referenced.

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The information presented in this commentary is the opinion of the author and does not reflect the views of any ÿother person or entity unless specified. The information provided is believed to be reliable and obtained from ÿreliable sources, but no liability is accepted for inaccuracies. The information provided is for informational ÿpurposes and should not be construed as advice. Advisory services offered through Knode Wealth Management, LLC, an investment adviser registered with the State of Texas.