The two obstacles to global growth, policy uncertainty and tariffs, were both born last year in the US. Both are now intensifying, as the Trump administration redefines risk across multiple fronts.
Geopolitical risks are high. US action in Venezuela and tensions over Greenland signal a return of sphere of influence. Trade risks are also significant. The US Supreme Court has yet to rule on the legality of import tariffs. And the Federal Reserve is also under fire.
So, what’s at stake for the economy? Geopolitics rarely moves activity and markets unless energy markets or supply chains are disrupted. If the US Supreme Court rules against some tariffs, the Trump administration will find alternative ways to impose them. As for the Fed, there’s a limit to political interference, because US monetary policy is set by a 12-strong committee operating by majority, which will preserve its credibility regardless of who the next Chair is.
This means that global growth can navigate uncertainties, largely thanks to pro-growth monetary and fiscal policy support.
Global growth can navigate uncertainties
In the US, the economy is being propped up by wealthy consumers, corporate and AI spending. Vulnerabilities stem from lower-income households, and small businesses, which are more sensitive to tariffs. The job market is slowing, but we see no signs of recession, nor of economic reacceleration with growth that should be slightly below potential this year.
We see no immediate reason for further interest rate cuts. Tariffs are still holding inflation above target, even if it’s falling elsewhere. The Fed should keep its policy rates on hold until mid-year, before resuming its cuts in the second half to support employment.
Europe’s outlook is stable for now, despite strained transatlantic relations. We expect growth of around 1.1% across the bloc, and the European Central Bank to keep rates unchanged from today’s level.
In China, exports are solid, but domestic demand is sluggish. Overall, with more fiscal stimulus, the Chinese economy should grow 4.3% this year, in line with official targets.
So how does this macroeconomic picture shape our portfolio positioning?
Despite the uncertainties, 2025 was a strong year for markets amid an “everything-but-the-dollar rally”. But we live in a new world order, and investment opportunities are evolving.
We start 2026 with a moderate pro-risk positioning
We start 2026 with a moderate pro-risk positioning. While growth should slow through the year, stronger end-2025 momentum provides a higher buffer. Markets are backed by still-strong fundamentals as companies continue to grow earnings, allowing for broader equity market performance. Monetary and fiscal policies are supportive and market sentiment has room to improve. But we are vigilant because equity valuations are stretched in some regions and sectors, and low volatility makes markets vulnerable to shocks.
Diversification is key. We stay overweight in global equities, with a preference for emerging markets, as they offer higher earnings growth at a more reasonable price. In developed markets, US equity valuations are still high, and we see better prospects for Swiss stocks. In sectors, as performance broadens beyond US tech, we favour a mix of defensive and cyclical sectors, including materials, utilities, and healthcare. These are also benefitting from AI investments and other secular trends.
In fixed income, we maintain a neutral overall stance. Our preferences remain emerging market hard currency bonds for their attractive yields, and UK Gilts, for their combination of income and capital gains.
More than ever, gold has a critical role. Despite its stellar performance in 2025, gold remains the most attractive portfolio hedge against market and geopolitical risks. Momentum from private inflows and central bank diversification will remain strong.
As for the US dollar, renewed Fed easing and US policy uncertainty argue for sustained weakness and lower exposures.
It has been a turbulent start to 2026. The world continues to fracture into rival blocs, increasing market volatility. This reality will persist through the year, and intensify as the US mid-terms approach and the Trump administration’s political agenda continues to create instability.
One key lesson from 2025 is it’s important to remain invested through the noise. Economies are still expanding, corporate growth is solid, policy offsets are in place, and the private sector is strong.
