Q1 2026 Outlook

January 2026

Issue #9

Growth Upand Inflation Down!

THE BIG 3

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Disinflation accelerating

CPI, shelter, goods and energy all cooling

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Liquidity + Leverage 

More of everything in the system

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Hard Assets and Unlikely Winners

Metals and EM are still running.

Disinflation Rolls On

Lots of talk on affordability and inflation is backwards.

Headline inflation is coming in below expectations. There is a real likelihood this could continue through second quarter. Most developed economies are seeing disinflation – here is a breakdown of what is driving it in the US:

• Shelter: Home prices (a leading indicator for CPI shelter) have been slowing for 18 months. Zillow’s rental index is also soft, and rental vacancies are ticking higher — all pointing to cooler prints ahead.

• Goods: Core goods inflation is easing. Global shipping rates — especially Shanghai container freight — peaked mid-2024, and are now rolling over.

• Energy: Oil, gas, and diesel prices are trending lower, with CPI impacts showing up on a lag. The trend here? Down.

• Services: Wage growth is softening alongside a lower quits rate. That means less bargaining power, which flows through to weaker services inflation in the months ahead.

Liquidity + Leverage

The cycle continues: deficit-fueled U.S. demand soaks up the world’s surplus, and those dollars get recycled straight back into financial markets. It’s a circular loop of asset price support — and it’s holding firm, as long as spending persists and the system stays stable.

What we are seeing:

• Quantitative tightening is over. The Fed is quietly launching capital back into the system.

• Divergence in policy outlooks: Eurozone and EM are likely to cut rates while the US is in a holding pattern.

• Earnings growth is broadening across sectors, and loan growth remains firm. Small business credit trends? Still improving.

Hard assets and Unlikely Winners

This isn’t the start of the gold rush — we’re already in it.
Gold isn’t following the rules anymore. It’s broken the old inverse relationship with real yields and the dollar and is now doing one thing well: going up. So is silver. So is copper. Platinum’s tagging along. This hasn’t been a quiet move either. Not only are central banks buying up metals, but institutions are even using leverage to buy bonus exposure. 

International and Emerging Markets are also benefactors of increasing global money supply. Since the dollar has paused its recovery, dollar-denominated debt is easier to service. In other words, growing economies find it easier to borrow money in US dollars. As such, they need to pay the interest in US dollars. When their local currency is strong relative to the greenback, it is cheaper for them to pay the interest and easier for them to borrow money to help fuel local growth. We expect this to continue as a trend, especially if the new Fed chair decides to cut rates aggressively.

The Bottom Line

Markets are climbing walls of worry in just about every category of risk asset. Eventually, asset classes will diverge again, but disinflation, high fiscal spending, and relatively loose global monetary policy should keep the party going for a while. When the music stops, investors who maintained their diversification and took thoughtful (as opposed to speculative) risk will be rewarded. That’s why playing the long game traditionally wins over a full economic cycle.