In the UK, it seems that we have a dysfunctional government, and across the Atlantic, we have an assertive, controversial US President. Although the details of his policy are subject to unpredictable variation, there is no doubt about the direction of travel. Policy decisions are inclined to place American interests ahead of all others.

Sometimes we get too distracted by the negatives, with the result that we overlook the positives. It’s human nature. But there are positives visible to those who want to see them. This explains why, from an investment standpoint, PMW has entered 2026 with measured optimism. While the geopolitical backdrop remains volatile and unpredictable, it is important to remember that financial markets are not arbiters of morality or fairness.

Their purpose is to assign a present value to future cash flows—whether from corporate profits or interest payments on corporate and government debt—while incorporating a premium for all forms of risk, including geopolitical uncertainty. For investors, opportunities continue to emerge, even in challenging environments.

And the conditions to support a positive outcome for financial markets are in place, driven by macroeconomic conditions in the US. The US economy is resilient and is expected to continue to achieve strong GDP growth. Some are predicting that when published, the figures for the final quarter will show a further acceleration in GDP growth to an annualised rate of more than 5%. Compare this with the sclerotic growth of the UK and Euro Area economies.

An acceleration in GDP growth at a time when the number of people in employment is not growing significantly implies an increase in productivity. This might have a lot to do with the rapid adoption of AI in US businesses, enabling them to do more without needing to employ extra staff.

The worst fears for the impact of tariffs have not materialised. The effective overall tariff rate has settled at around 14%, which is well below the eye-watering rates implied when they were first announced, and US household balance sheets are healthy by historical standards. Furthermore, corporate profit growth is strong, and US interest rates are likely to fall again, although perhaps not quite as much as hoped for by some.

Another factor is that the US mid-term elections are on the horizon. Trump needs to improve his ratings if he is not to lose his majority in Congress, the Senate or both. His tax bill, which he named the Big Beautiful Bill, will provide a windfall in tax rebates for individuals and corporates alike in April, helping to support economic activity. The overall increase in tax rebates is forecast to be as high as $90 billion in 2026 and will likely help drive already strong consumer spending.

For these reasons, we expect the US stock market to outperform its major peers in 2026. The relative outperformance of others in 2025 was most likely a one-off catch-up in company valuations resulting from the negative sentiment towards US foreign policy.

From a geo-political perspective, 2026 has already provided much to think about. The effective US takeover of Venezuela was probably more about geopolitics than economics. Venezuela might have the world’s largest oil reserves, but the oil is heavy and therefore both difficult and expensive to extract. The current cost of extraction is higher than the prevailing oil price. There probably aren’t any quick bucks to be made, which explains why US oil executives are looking nervously down at their shoes when Trump talks about the US leading an investment-led production renaissance.

And more recently, the craziness has continued with heavy-handed threats to the sovereignty of Greenland. There’s some irony in that, during the year the US celebrates 250 years of its own
independence, it is threatening to deprive other nations of theirs.

Our expectation is that this dispute will blow over. The US already has the right to establish and maintain the additional military presence it needs to place in Greenland as the Arctic continues to melt. Once Trump secures some concessions relating to mineral and rare earth deposits, he’s likely to move on to other issues. So, any market volatility resulting from this war of words is unlikely to have reason to persist.

In summary, although we should expect investment volatility to be a feature of 2026, we are confident that a diversified strategy and conservative approach will deliver good returns for investors over the course of the year.

This is an abridged extract from our latest financial market commentary, which you can view at www.pmw.co.uk/news

If you would like us to help you optimise your own financial and investment approach, we’d love to hear from you.

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