Richard Warne, Senior Portfolio Manager, Copia Capital
US midterms and market implications
With President Trump facing midterm elections in November next year, 2026 is likely to be marked by ongoing uncertainty. Measures to stimulate the economy ahead of the vote are already being discussed. These include fresh tax cuts and more deregulation, with parachute payments direct to households also under consideration. This noise will likely intensify as the year progresses.
Markets had previously priced in a series of interest rate cuts throughout 2026. However, stronger-than-expected growth figures and delayed inflation data have reduced the likelihood of a recession, and the probability of aggressive interest rate easing has declined. Potential friction may emerge if the White House pushes for rate cuts that aren’t supported by economic data. This could be a decisive challenge for the new Federal Reserve Chair who will succeed Jerome Powell in May 2026.
From a market perspective, US equities could benefit from stimulus measures, potentially supporting earnings growth and investor confidence, although this typically takes six to nine months to filter through to the real economy. Yet valuations are already trading well above long-term averages, even excluding big tech and AI names. It’s a valid question as to how much further upside stimulus can deliver.
Looking ahead, two scenarios seem most likely. The wave of AI-driven investment continues, with expected revenues eventually materialising to support sectors such as energy, chips, industrials and infrastructure. Or, valuations are tested, confidence wavers and capital potentially rotates towards more traditional areas like small-caps, cyclicals, and other less glamorously perceived parts of the market.
Global opportunities
Against this backdrop, opportunities outside the US, in regions and sectors with more modest valuations and ongoing structural change, are increasingly compelling. In Japan, corporate reforms are making small and mid-cap stocks increasingly attractive. Across emerging markets and Asia more broadly, economies already adjusting to dollar fluctuations offer real potential. Europe is entering a significant phase of infrastructure and energy-transition spending, and even modest deregulation could boost productivity. Closer to home, the UK remains uncertain, but valuations are appealing. Unlike the US, the UK economy is concentrated in traditional sectors like banks, mining and industrials. For investors that are brave enough there is particular valuation attractions in the small and mid-cap part of the market, and in stocks that are more UK domestically orientated.
Beyond equities, macro contradictions make fixed income challenging. Solid growth and persistent inflation, combined with rising energy and commodity demand, could reinforce price pressures. Long-duration bonds may remain vulnerable to policy shifts and volatility, whereas high-quality, short-duration credit may offer more stable, lower-risk income opportunities for clients without excessive interest-rate sensitivity.
Commodity markets also present interesting themes. Industrial metals could benefit from infrastructure investment and AI-related demand. Similarly, energy providers may gain from expanding data centres and AI infrastructure. While not a growth engine, gold continues to offer a hedge against a weaker dollar and policy uncertainty.
Finally, property offers selective opportunities for 2026, particularly in the UK. Ongoing merger and acquisition activity in the UK real estate markets suggests pockets of value for investors.
Selective optimism
The bottom line for 2026 is selective optimism. Policy stimulus, solid growth and pockets of value offer genuine opportunities, but they will not be evenly distributed. The most compelling theme for investors continues to be diversification: broad global equity exposure – with a focus outside the US – value and cyclical sectors, small- and mid-caps, disciplined fixed income allocations, and selective exposure to commodities or infrastructure.
Success in 2026 will depend less on picking a single winner and more on building a resilient, well-balanced portfolio that can adapt over the next 12 to 24 months. Volatility is likely to remain, but with a clear approach, 2026 could be a year that rewards patience, discipline and diversified thinking.
18th December 2025
2026 investment outlook: midterms, stimulus and global opportunities
Richard Warne, Senior Portfolio Manager, Copia Capital
US midterms and market implications
With President Trump facing midterm elections in November next year, 2026 is likely to be marked by ongoing uncertainty. Measures to stimulate the economy ahead of the vote are already being discussed. These include fresh tax cuts and more deregulation, with parachute payments direct to households also under consideration. This noise will likely intensify as the year progresses.
Markets had previously priced in a series of interest rate cuts throughout 2026. However, stronger-than-expected growth figures and delayed inflation data have reduced the likelihood of a recession, and the probability of aggressive interest rate easing has declined. Potential friction may emerge if the White House pushes for rate cuts that aren’t supported by economic data. This could be a decisive challenge for the new Federal Reserve Chair who will succeed Jerome Powell in May 2026.
From a market perspective, US equities could benefit from stimulus measures, potentially supporting earnings growth and investor confidence, although this typically takes six to nine months to filter through to the real economy. Yet valuations are already trading well above long-term averages, even excluding big tech and AI names. It’s a valid question as to how much further upside stimulus can deliver.
Looking ahead, two scenarios seem most likely. The wave of AI-driven investment continues, with expected revenues eventually materialising to support sectors such as energy, chips, industrials and infrastructure. Or, valuations are tested, confidence wavers and capital potentially rotates towards more traditional areas like small-caps, cyclicals, and other less glamorously perceived parts of the market.
Global opportunities
Against this backdrop, opportunities outside the US, in regions and sectors with more modest valuations and ongoing structural change, are increasingly compelling. In Japan, corporate reforms are making small and mid-cap stocks increasingly attractive. Across emerging markets and Asia more broadly, economies already adjusting to dollar fluctuations offer real potential. Europe is entering a significant phase of infrastructure and energy-transition spending, and even modest deregulation could boost productivity. Closer to home, the UK remains uncertain, but valuations are appealing. Unlike the US, the UK economy is concentrated in traditional sectors like banks, mining and industrials. For investors that are brave enough there is particular valuation attractions in the small and mid-cap part of the market, and in stocks that are more UK domestically orientated.
Beyond equities, macro contradictions make fixed income challenging. Solid growth and persistent inflation, combined with rising energy and commodity demand, could reinforce price pressures. Long-duration bonds may remain vulnerable to policy shifts and volatility, whereas high-quality, short-duration credit may offer more stable, lower-risk income opportunities for clients without excessive interest-rate sensitivity.
Commodity markets also present interesting themes. Industrial metals could benefit from infrastructure investment and AI-related demand. Similarly, energy providers may gain from expanding data centres and AI infrastructure. While not a growth engine, gold continues to offer a hedge against a weaker dollar and policy uncertainty.
Finally, property offers selective opportunities for 2026, particularly in the UK. Ongoing merger and acquisition activity in the UK real estate markets suggests pockets of value for investors.
Selective optimism
The bottom line for 2026 is selective optimism. Policy stimulus, solid growth and pockets of value offer genuine opportunities, but they will not be evenly distributed. The most compelling theme for investors continues to be diversification: broad global equity exposure – with a focus outside the US – value and cyclical sectors, small- and mid-caps, disciplined fixed income allocations, and selective exposure to commodities or infrastructure.
Success in 2026 will depend less on picking a single winner and more on building a resilient, well-balanced portfolio that can adapt over the next 12 to 24 months. Volatility is likely to remain, but with a clear approach, 2026 could be a year that rewards patience, discipline and diversified thinking.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.