Entering Q1 2026 with the S&P 500 near 6,940, global growth moderates to 3.0% amid AI-driven U.S. resilience, trade tensions, and cautious central banks. The eurozone projects 1.2–1.4% growth on German fiscal stimulus, though manufacturing challenges persist. Emphasize quality, diversification, and liquidity preservation.
The S&P 500 targets 7,100–8,000 for potential 3–17% gains on 10–14% earnings growth from AI productivity, though valuations near 40x Shiller CAPE mark the second-highest level in history. The Fed holds at 3.50–3.75% with only 1–2 cuts expected in 2026 as inflation hovers near 3%. 10-year yields remain at 4.0–4.5%, limiting bond upside. Favor healthcare defensives, consumer staples, and selective technology.
European equities trade at 14–15x earnings—a 35% U.S. discount. The ECB holds at 2.0% with inflation projected at 2.1% in 2025, falling to 1.9% in 2026. After eight cuts through December 2025, rates should remain steady through 2026. Target domestic-focused companies, defense, and utilities.
Gold hit records above $4,870/oz in January, with Q1 targets of $4,100–4,900 (Goldman at $4,400, UBS at $4,200–4,700) on central bank buying, geopolitical tensions, and safe-haven demand. Risk: 5–20% correction if policy succeeds. Brent crude stabilizes at $58–66/bbl.
Key risks: extreme valuations at 40x CAPE, policy uncertainty, persistent 3% inflation risking hawkish pivots, and optimistic earnings assumptions amid 3.0% global growth. We maintain current allocations and preserve liquidity. We suggest to rebalance only on significant valuation compression or clear policy direction. Prudence over premature action in this elevated-valuation environment.
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