Looking Ahead to 2026 Through an Institutional Lens
As we look toward 2026, we are not entering the year with a single forecast or a neatly packaged base case. From an institutional perspective, this feels more like a transition than a continuation. Markets may be shifting away from story driven momentum toward a world defined by constraints. Fiscal limits, supply bottlenecks, geopolitics, and valuation discipline are becoming harder to ignore. Our priority is not predicting the next shock, but avoiding the comfort of portfolios that appear diversified yet rely on the same assumptions when stress arrives.
One of the clearest shifts we are watching is the market’s patience with earnings. The past year rewarded ambition and narrative, particularly around AI and scale. In 2026, we expect a more demanding audience. Strong companies can still perform well, but the bar is higher. Cash flow, margins, and pricing power matter more when expectations are elevated. We are taking a close look at how much exposure we have to the same large growth names, including through passive allocations, and balancing that with businesses that generate reliable cash without needing perfect execution.
At the macro level, we are spending less time trying to read central bank intentions and more time watching governments. Fiscal policy, debt dynamics, and political cycles are shaping markets in ways monetary policy alone cannot smooth out. This has important implications for bonds. Rate cuts do not automatically translate into strong long bond performance, especially if growth holds up or supply remains heavy. Our approach has been to think in terms of balance and adaptability rather than assuming bonds will always play the same defensive role they once did.
Another area of focus is how easily crowded positions can unwind. Many portfolios are quietly dependent on stable inflation, a weaker dollar, and orderly global conditions. When those assumptions are challenged, correlations can rise quickly. Inflation does not need to stay high to be disruptive. It only needs to become unpredictable. In that kind of environment, liquidity, flexibility, and avoiding one way positioning become just as important as return maximization, even if they feel uncomfortable during strong markets.
Ultimately, our definition of diversification is evolving. Owning more assets is not the same as owning different risks. As we head into 2026, we are organizing portfolios around sensitivities to growth, inflation, rates, currencies, and shocks rather than around traditional asset buckets. This approach does not eliminate drawdowns, but it improves the odds of navigating very different market regimes. If there is one lesson we carry forward, it is that the biggest mistakes usually come from assuming the next year will reward the same exposures as the last one.
