Is the positive consensus in the price?

Hello, it's the 16th of January. Welcome to 2026. You might have hoped for a gentle start to the year to ease into things, get up to speed, but there's been plenty going on and you really won't have had a chance to do that. Some of the main things, obviously the US military intervention in Venezuela, then the stopping of that oil tanker heading back north at sea. We've had the Iranian protests and crackdown. We've had the Department of Justice looking into the Federal Reserve and also some noise around or repeated noise around Greenland and the US's aspirations there. The market response to all of this so far has been really to sort of shrug and carry on. The VIX, implied volatility index, the so-called Wall Street fear gauge, has risen a little bit over the last week or so but really not in a sort of material way. Equity markets generally are up a couple of percent so far year to date, and bond yields have drifted down a touch, but haven't really moved a huge amount on average. 

So there's been some pretty big news, much of it, I suppose, not really being market impacting, not likely to affect the prospects of businesses and indeed the overall performance of the global economy, unless they gain in prominence from here. So the market sort of shrugged so far, which is a fairly rational response. And of those, clearly if were to see a more material conflict in the Middle East that would likely impact if nothing else supply of oil and that's something to sort of watch closely. But perhaps the most fundamental would be if anything too robust happened with respect to Greenland because clearly you've got very long-standing, ally ships, NATO, transatlantic economic ties, all of which would come under significant scrutiny if anything were to happen there. There are clearly increasing risks coming from that rhetoric, but on the whole so far, the market's really taking a watching brief. So 2026 so far has been the year of the headline, but in terms of the bottom line impacts, what really matters to us as investors, there's not been too much yet. 

As is customary, at this time of year, there's been lots of outlook calls, webinars and conferences that myself and other members of the team have been attending. We don't do that to sort of form our view, but clearly it's information and useful bits that we can then sort of have as part of the mosaic that sits in our process. This week, I attended a couple of presentations from large, global custodian banks, a UK, a very large UK insurer, a large global investment bank, and a Swiss private bank. So a pretty disparate range of businesses there. But what was quite stark and I think unusual for these sorts of events is the level of consensus is pretty significant. You could almost have debadged any one of these slides and got a presenter from any one of these conferences to give them and the overarching themes would have been broadly the same. Now, you know, often you do expect to see a general consensus in terms of outlook and as you know of course generally the sort of outlooks are sort of a little bit middling and perhaps unexciting. But the level of consensus this time really I think has been pretty stark. So what I thought I'd do just briefly now is try to sort of summarise that consensus and we can sort of dig into bits and pieces of it over the course of the year and perhaps check back as we go along to really understand whether that has come through or not. 

So the broad consensus from all of these outlook events that we've been to so far is, actually 2026 is looking like a pretty decent year, so a risk-on year to sort of paraphrase really what we've heard. You've got the general consensus that there will be continued monetary loosening, central banks keeping those interest rates coming down, not withstanding obviously what's going on in the US, and in many ways, there's a suggestion that on the balance of probabilities, the risk to actually that interest rates come down further than is perhaps priced in at the moment. That's a broad consensus point, and at the same time, there is a lot of fiscal loosening going on, not least the US 'big, beautiful bill', lots of fiscal loosening expected in Germany this year. And so, you know, the overall point being that expectation for this year is actually a pretty loose and favourable environment for economies. Decent growth environment, inflation not too hot, not too cold, heading firmly into the Goldilocks territory and a supportive environment for investment markets. 

We're reliably informed from one of the presenters last week, that this is the first time since the 1960s that we've seen very significant monetary easing and fiscal easing without there being some sort of crisis causing it going on in the background. You know we've been similar events perhaps in COVID, certainly lots of fiscal loosening there, but there was a reason for it. We saw similar behaviour perhaps during the Financial Crisis. Again, there's a reason for it. And their suggestion is the last time we had this level of fiscal or monetary loosening without a crisis, without a real sort of need to do it from a sort of public good perspective, was really in the 1960s. And if that's the case, that's a really interesting snippet there. 

So other points of consensus; interest rates are around about where they should be. Don't expect bond yields to move down dramatically from here. You get a decent carry. You're getting paid in excess of inflation. So, you know, carry on as you are, if you like. Investment grade, again, so consensus is spreads are tight, but they're okay. You know, they don't have to fly up from here, but as always, look for active managers to take advantage of that. Likewise in high yield, really again, the sort of argument being that spreads are low, but the overall yield picture is pretty good. And as we've said before in these calls, the long term determinant of your high yield return tends to be that yield that entry. And so you know again the broad consensus is that valuations aren't great in high yield but the opportunity remains pretty good if you're a long buy and hold investor. Another point of consensus is that the dollar is likely to continue to weaken. It had a period of weakness at the start of last year, then sort of plateaued through much of 2025. The expectation that it continues in 2026 to weaken should boost emerging market equity, should also help emerging market debt out as well. And then also, of course, you've got the Chinese five-year plan coming up this year. Again, the consensus is that will be very pro-growth, supportive of markets. So again, the consensus is you'll get a pro-growth agenda from China over the next five years and a supportive one for markets, which again, is a broadly constructive market picture. 

So that's the consensus. It is a positive one overall, sort of heading into gains for equity markets, I suppose, over the course of 2026, if it is to be believed. The one thing to bear in mind about consensus, of course, particularly this year where everyone seems really sort of focussed around one consistent base case thesis, which is a positive one that we're all going nicely from here, is if it is consensus and if it's a broadly held consensus, the likelihood is a lot of it, if not all of it, is already in the price. And so you need to take it with a bit of a pinch of salt and say, well, where could it go wrong? You know, there are risks to the upside. It could be better than consensus, but clearly we tend not to worry too much about risks to the upside, we tend to like those. But of course there is also risk with disappointment if everyone's expecting decent growth, helpful inflationary environment, lots of loosening to get stuff going. Clearly there is scope for disappointment coming through there too. So we need to bear in mind the risks to that base case thesis, particularly as we say 'in the left tai' in terms of disappointment land from there. And one of the best antidotes to that, of course, is to avoid overpriced assets. And we've seen some concentrated expensive assets, particularly in the US. We need to remain careful there and indeed that's even part of the consensus as well as you know AI can continue to run in terms of the theme and indeed the stocks could, but there is concentration and high valuations there, so that's an area to be careful. The other way of course is through diversification. Having different eggs in different baskets. Having even within equities different styles and active managers really to navigate these choppy waters, making lots of use of fixed income and indeed alternatives to really diversify risks away from the one kind of core outcome, which sounds very good but of course may already be largely in the price. 

That's it from me, have a good weekend when get there and we'll see you next time.