Back
As 2026 begins, the global economic narrative has taken a more constructive turn. Consensus growth expectations have improved meaningfully across major regions, buoyed by a rare alignment of supportive forces: renewed fiscal stimulus, the long-awaited turn in the interest-rate cycle, and continued capital expenditure linked to artificial intelligence (AI). Together, these dynamics have restored confidence that growth and earnings can once again justify elevated equity valuations.
Yet this is not a conventional cycle. While the outlook has brightened, the signals guiding markets have become increasingly distorted. Politics, rather than economics, now exerts an outsized influence on capital flows, valuations, and investor behaviour. The result is a market environment that looks stronger on the surface, but more fragile if you dig a little deeper.
A more supportive growth backdrop
The improvement in growth expectations is neither accidental nor superficial. Governments, constrained for years by inflation and rising borrowing costs, are once again deploying fiscal policy as a tool to support economic activity. Infrastructure and defense spending, along with industrial policy, are replacing austerity as the dominant theme.
At the same time, inflation has moderated sufficiently to allow central banks to shift their posture from restrictive to supportive. Rate cuts are now being priced in, not as a response to economic stress, but as a catalyst for renewed momentum.
Overlaying these cyclical forces is a structural one. Investment in AI continues at pace, extending well beyond early adopters into broader corporate and industrial ecosystems. AI-related capital expenditure is no longer viewed solely as speculative; it is increasingly tied to productivity gains, margin resilience, and longer-term earnings growth.
Valuations supported, but not forgiving
Equity markets have responded accordingly. Valuations remain elevated, particularly in developed markets, but are increasingly defended by earnings expectations rather than multiple expansion (where valuations increase while growth remains modest) alone. This distinction matters. It suggests a market attempting to ground optimism in fundamentals.
However, the margin for error is thin. Leadership remains concentrated, expectations are high, and investor tolerance for disappointment is low. Earnings growth and margin resilience do seem to be broadening beyond just the Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) which is very positive for the entire equity universe.
When politics crowds out the cycle
Geopolitics has moved from the periphery to the centre of market decision-making. Trade policy, regulation, fiscal choices, and strategic competition between nations now interfere directly with historical economic relationships.
Markets are no longer responding cleanly to growth, inflation, or monetary policy alone. Instead, they oscillate between optimism and caution as political narratives shift.
Gold and the price of unease
It is against this backdrop that gold has continued its ascent. The strength of the gold price is not a rejection of growth optimism; it is a reflection of unease.
Investors are participating in risk assets while simultaneously seeking protection against policy error, fiscal excess, and geopolitical rupture. Gold has become the hedge of choice in a world where political outcomes are harder to model than economic ones.
Discipline in a distorted world
Periods like these demand perspective. When politics interferes with cycles, and narratives shift rapidly, discipline becomes the investor’s greatest asset.
At Peregrine Wealth, our multi-scenario approach is designed precisely for such environments. We participate in opportunity, but we do not rely on a single outcome.