The stock market has a tendency to rise in price despite widespread concerns and regardless of whatever negative economic, political or social conditions are prevailing at any given moment. Indeed, long-term investors are accustomed to having to surmount a multitude of negative factors and climbing the “wall of worry”.
As equity markets continue on their upwards trajectory to the top of this wall, hitting new all-time highs across-the-board, investors once again find themselves fearing a formidable crash in asset prices. The bricks in today’s wall of worry are ongoing concerns about inflation, interest rates, political dysfunction, mountains of debt, wars and valuation fears.
Individually, these bricks create volatility. Collectively, however, they do not fully derail the uptrend.
Stock market corrections, although painful when they happen, are actually healthy and form an integral part of the whole mechanism: speculative excesses have a tendency to develop, particularly during long bull markets.
Typically, what stops a bull market is a combination of deteriorating fundamentals. These can include tighter financial conditions, economic slowdowns, recessions, downward earnings revisions and weaker growth. A bull market rarely ends for a single reason, so trying to call the exact top of a market is tricky. It’s best to monitor these clusters of risk and then tilt your investment exposure accordingly.
We are barely three weeks into January and already the US has carried out airstrikes across Venezuela and captured its president, it has set its sights on the acquisition of Greenland as a strategic imperative and has even considered action in Iran. In short, it has signalled a fundamental shift: proximity now matters.
This shift has gone hand-in-hand with increasingly pronounced global fragmentation. Indeed, the age of cost efficiency and globalisation is pivoting towards a new paradigm: a renewed focus on security, resilience and capital-intensive innovation, with each fuelling the next through ongoing investment, resource scarcity and rising structural costs.
In the US, Trump has ratcheted up his clashes with the Federal Reserve Bank, further questioning the legitimacy of the independence of the world's most powerful central bank. The Department of Justice has recently ruled to open a criminal investigation into Fed chair Jerome Powell over the cost of renovations to the bank's headquarters. This has done little to improve relations between the two, with Powell asserting that the ruling is a pretext designed to pressurise the central bank into cutting interest rates more aggressively. This episode marks the sharpest challenge yet to the Fed’s autonomy.
The technology race shows no signs of slowing down, and the latest US-Taiwan trade deal is a landmark agreement on semiconductors, designed to establish the world's most important industry firmly within US borders while strengthening Washington’s strategic partnership with Taipei.
Under the deal, the US will cut tariffs on most Taiwanese exports, while its semiconductor and technology companies will invest heavily in the US. The agreement incentivises firms like TSMC to expand chipmaking in states like Arizona by offering favourable tariff treatment to companies that build production on US soil. This reflects Washington’s push to reshore supply chains viewed as vital to national security. China has condemned it as an act of provocation that undermines the “one China” framework.
The banks have already started and, for the most part, concluded reporting their Q4 2025 corporate earnings, which officially kicked off the broader earnings season. So far the results have been broadly solid, albeit with a slight pullback from the December highs. Higher expense guidance driven by investment in technology upgrades added some pressure, as did concerns over the proposed 10% credit-card interest-rate cap. This will doubtless constitute a material headwind to card lenders and may lead to a pullback in credit availability. However, M&A activity, ongoing deregulation, and improving loan growth all point to a healthy future corporate earnings outlook.
But Wall Street will needless to say be focused on those large US technology companies, and will be listening out for what senior management has to say on any future guidance.
The Japanese stock market continued to hover around its record high on the news that Japan’s Prime Minister Sanae Takaichi is preparing to call a snap general election in early February. A Takaichi victory would most likely provide greater clarity around the political direction (a majority for the ruling Liberal Democratic Party) and clear the way for more aggressive fiscal stimulus. This would revive what investors have called the “Takaichi trade”, which has boosted markets centred on artificial intelligence, nuclear energy and defence.
The initial reaction on the news of a snap election saw the yen depreciate sharply against the US dollar before recovering and then holding steady for the rest of the week. The yen then quickly rallied on the back of a comment from Finance Minister Satsuki Katayama, who reasserted that the government could take decisive action against sharp currency moves that do not reflect fundamentals.
In the UK, GDP grew by 0.3% in November, having contracted in the previous two months. While this result was better than the consensus forecast of 0.1% growth, it will be interesting to see how the economy fared over the festive period, and how consumers have reacted to the political upheaval that characterised the final weeks of 2025.
Global stock markets are generally expected to deliver positive but moderate returns for 2026. These returns will be supported by mid-3% global GDP growth and easing financial conditions, combined with corporate earnings that continue to be AI-driven. But with elevated valuations in some markets and heightened geopolitical risks, volatility is likely to remain high.
The general consensus is therefore for single-to-low-double-digit global equity returns, with the US still leading the way on corporate earnings. While Europe and the emerging markets might lag behind somewhat, their potential to outperform Wall Street is a distinct possibility, given their cheaper valuations and the benefits created by a weaker US dollar.
Valuation risk is also a constant threat, but more so in US, where multiples are elevated in comparison with historical data. The stock markets are vulnerable to increased tariffs and wider geopolitical shocks over the short term.
Fundamentally, moderate growth, high (but not extreme) valuations and identifiable tail risk all mean that we continue to recommend staying invested in global equities with measured risk, balancing equity exposure with some defensive sleeves, such as high-quality bonds. Investment tilts favouring quality growth names is our preferred strategy, and we believe that AI/automation will continue to gain momentum, benefiting the US. However, wider diversification towards regions such as Europe, Japan and the emerging markets would seem sensible.
