07.01.26

January 2026 Investment Summary

As the new year begins, we are pleased to share our first market commentary of 2026, setting the tone for a year of informed and forward-looking insight. In this January Investment Summary, our Chief Investment Officer, Jeff Brummette, reflects on December’s market performance and the key forces that shaped returns across equities, fixed income, commodities and currencies, bringing a strong investment year to a close. He also looks ahead to the themes likely to define the year in front of us, from shifting fiscal priorities and evolving central bank policy to structural drivers such as defence spending, artificial intelligence and rising global electricity demand, providing timely perspective to guide portfolio positioning in the months ahead.

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Equity markets delivered a generally positive month in December rounding off another strong year of returns.

 

Equity Markets

Index returns are in local currency terms except where noted

Source: Bloomberg

 

What is notable is the extent that exchange rate movements played a big part in returns for UK investors. The appreciation of pound sterling against the U.S. dollar negatively impacted returns on U.S. holdings, while euro strength versus pound sterling had the opposite effect. As a result, a simple index allocation heavily weighted towards U.S. stocks would not have been the most effective strategy.

Fixed income delivered steady returns as central banks continued to lower rates in response to moderating inflation. However, significant commitments to increase defence spending across Europe pushed longer-term European yields higher, which in turn detracted from fixed income performance.

 

Fixed Income Markets

Source: Bloomberg

It was an exceptionally strong year for many commodities. Concerns over fiscal deficits and persistent inflation drove gold and silver sharply higher, while growing demand for electricity, much of it linked to AI-related data centre growth, boosted copper prices and added further momentum to silver.

Oil, by contrast, stumbled as sanctions on Russian and Iranian crude did not meaningfully reduce world supply, which continued to exceed demand by a comfortable margin.

 

Crude Oil Price

Source: Bloomberg Finance L.P.

Bitcoin had a notably weak year as it significantly underperformed most other asset classes. It was the first time in which the cryptocurrency did not rally alongside technology stocks, even as President Trump voiced explicit support for digital assets.

 

Alternative Investments Markets

Commodity returns are versus the U.S. dollar 

Source: Bloomberg

 

The U.S. dollar declined versus most major currencies, apart from the Japanese Yen where it held steady.

 

Currency Rates

Exchange rate changes are versus the U.S. dollar 

Source: Bloomberg

 

Several of the themes that drove investment returns in 2025 are set to continue in the year ahead. Capital expenditure spending by the mega-cap technology companies is set to rise even higher.

 

Hyperscalers’ Annual Capex (2025 and 2026 Reflect Estimates)

Source: Citi Research

 

Defence spending in Europe is likely to continue to climb as the U.S. reduces its support for Ukraine and the broader region. Germany, Europe’s largest economy, is leading this increase, supported by its considerable fiscal headroom.

 

Fiscal Deficit of Germany

Source: Bloomberg Finance L.P.

 

It is notable that Germany is abandoning its traditional fiscal restraint at a time when much of the developed world is already running persistently large annual deficits.

 

Global Fiscal Balance (% of GDP)

Source: Bloomberg Finance L.P.

 

We continue to view longer-dated government debt with caution. Debt issuance is also accelerating in the private sector, as the capital required to build out AI data centre infrastructure is increasingly being funded not only from technology company cash flow, but also through new borrowing.

 

Big Tech Stocks Binge on Debt

Source: Bloomberg Intelligence

 

We expect yield curves across most developed market to continue to steepen. As a result, we continue to concentrate our fixed income exposure in short to intermediate maturities.

Global electricity demand is rising, driven not only by AI-related data centre demand but also by broader structural trends. In response, the price of copper has risen sharply and is likely to continue to rise given the limited prospects for meaningful new supply.

 

AI Expected to Drive U.S. Power Demand Growth to 2035

Source: Bloomberg, IEA

 

Falling inflation has given central banks room to lower rates. However, its downward momentum may be nearing an end.

 

Inflation Levels for Eurozone, UK and U.S. (% Year-on-Year)

Source: Bloomberg Finance L.P.

 

If inflation’s decline is indeed ending, that would likely mark the conclusion of central bank rate cuts. However, this does not necessarily imply an imminent shift to rate hikes. Policymakers may instead tolerate a period of “hotter” economic growth as a way to address the growing fiscal deficit concerns. Higher nominal growth produces higher tax revenues, and if the level of inflation remains manageable, both businesses and households can cope.

The latest quarterly U.S. GDP figures illustrate this dynamic clearly. Third-quarter growth came in at 4.3% in real terms (annualised quarter-on-quarter) and an impressive 8.2% in nominal terms, all while the U.S. Federal Reserve was still cutting rates.

As we look ahead to 2026, we continue to favour exposure to the mining and defence sectors, alongside a strategic allocation to gold. Within fixed income, our stance remains cautious, and we prefer to maintain positions in shorter-dated maturities.

 

The price and value of investments and any income that might accrue may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment.

 

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Hear more from the Oakglen experts

Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which some of the investment management team have recently covered:

 

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    Jeff Brummette
    Chief Investment Officer
    +44 (0) 20 4583 1129

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