Multi-Asset Solutions: Outlook 2026

December 2025 | Julian Howard

A key concern for clients today is the risk around inflation.

This could come from three potential places. The first is tariffs, whose effects are still not fully manifesting themselves in the economy, although price rises in clothing, furniture and autos are starting to make themselves felt. The second source is the Trump administration’s pressure on the Fed for interest rate cuts, presumably partly to help fund the deficit as well as stoke economic activity. This is especially alarming since any such cuts would serve only to fuel above-target inflation further. The third source is the administration’s “Zero Migration America” policy. As migrants stop entering the country, or are deported, firms will face recruitment difficulties which will push up costs.

Turning to markets themselves, as global equities (driven by the US) have continued their rally during 2025, we believe the disconnect with underlying fundamentals is rapidly turning into a yawning chasm. Valuations in the S&P 500 Index are now markedly elevated with the price / forward earnings ratio now at over 25x. Of course, valuation alone is not a prognosticator of near-term market directionality, but it’s another symptom of a market now melting upwards almost without impediment. Boldly predicting the timing of a future correction or even just the next bout of volatility is a sure way to become hostage to fortune, but an educated assessment of where such an event may come from remains a useful thought exercise. More tariff announcements or indeed an inflation spike as described above could be the trigger for a potential market setback.

One emerging factor we have noted in 2025 as a shock absorber to market volatility has been the growing significance of a new generation of retail investors, many of whom access the market via gamified trading apps. While the emergence of these new investors has a secular feel to it, their vulnerability to both changing economic circumstances, and any faltering of the AI narrative that threatens market sentiment and wider corporate profitability, has yet to be tested.