Following a third year of strong returns in markets, there are reasons for both caution and optimism over the coming year, says Tom Stevenson, investment director at Fidelity International.
“After three years of rising markets, I’m optimistic but cautiously so. There’s certainly a good case to be made for another year of decent returns but it would be prudent not to expect another 20% year and to put some protections in place,” he says.
Stevenson notes that corporate earnings, the main driver of stock market returns over time, are looking robust. After dipping in response to President Trump’s tariff announcements last April, earnings growth expectations are back into double digits for both this year and next.
Furthermore, both fiscal and monetary policy looks likely to be supportive this year. Interest rates are expected to fall further, helped by a change at the top of the Federal Reserve in the Spring. Stevenson says this will support shares and short-dated bonds, even if fears about debts and inflation prevent long bond yields from falling much further.
However, bonds may not offer much growth, although they could still be a useful diversifier this year, he explains.
“That’s especially the case because gold has arguably had the best of its run. Bitcoin looks to be pausing for breath, in line with its proven four-year cycle of gains and subsequent retreats.
“Creating balance as the equity bull market matures will be one of the biggest challenges in 2026,” Stevenson adds.
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