Key Takeaways:

• Improving fiscal discipline and a less activist Fed support a clearer, more risk-on outlook for 2026.
• Late-2025 AI selloffs reset valuations, improving opportunities across AI and related themes like nuclear.
• After a tough 2025, BDCs and managers like Ares now offer more attractive yields and valuations.
• Gold continues to re-emerge as a global monetary asset, and pullbacks offer better entry points.
• India remains a high-conviction growth story, while crypto is long-term bullish but near-term mixed.

As we move into 2026, markets are operating in an environment with something investors have not had in years: visibility. That clarity around fiscal policy, monetary direction and major investment themes supports a more constructive, risk-on posture, even as selectivity remains critical.

Fewer Fiscal and Monetary Surprises Ahead

One of the most important developments for markets is the gradual improvement in the U.S. fiscal picture. While deficits remain elevated, they are shrinking as a percentage of GDP from the historic highs reached during the COVID period. This fiscal stabilization is helping anchor longer-term interest rates and reduce tail risks.

At the same time, Treasury Secretary Scott Bessent has articulated a new Federal Reserve philosophy that is less activist and more restrained. His comments suggest that the upcoming Fed Chair appointment process in May should be smooth, alleviating fears of institutional disruption or politicized monetary policy.

On rates, Bessent’s characterization of current interest levels as “normal” is telling. Markets should not expect aggressive or destabilizing short-term rate cuts in 2026. Instead, the outlook points to steady policy, modest adjustments, and fewer shocks—another contributor to improved visibility.

AI Bubble Has Popped, Creating Good Setup

After a sharp selloff in selected AI-related stocks late last year, the AI trade looks more attractive today than it did at the “nosebleed” levels seen in October. Importantly, the correction has occurred even as underlying demand for compute, tokens and productivity gains remain strong.

Adjacent themes, such as nuclear power tied to AI-driven electricity demand, have also repriced meaningfully. In our view, this reset improves the risk-reward profile for investors with a medium-term horizon.

Nuclear Stocks Corrected in Q4

Source: Bloomberg. Data as of December 31, 2025. Past performance is no guarantee of future results. Index performance is not illustrative of strategy performance. It is not possible to invest directly in an index.

BDCs Back in Focus

Business development companies (BDCs) experienced a difficult 2025, but that correction has created opportunity. With yields remaining attractive and credit fears largely priced in, BDCs now look more compelling than they did a year ago.

The same is true for the management companies behind them, such as Ares, which now trade at valuations that are far more reasonable relative to their long-term earnings power and track records.

Gold: A Global Monetary Asset

Gold continues to re-emerge as a leading global currency, driven by central bank demand and a world that is increasingly less dollar-centric. While gold appears somewhat extended from a technical standpoint, we view pullbacks as opportunities to add exposure. The structural case remains intact.

Gold Above Support But Demand Isn’t Going Away

Source: Bloomberg. Data as of December 31, 2025. Past performance is no guarantee of future results.

Opportunities in India and Crypto

Beyond U.S. markets, India remains a high-conviction, long-term opportunity, supported by structural reforms and durable growth dynamics.

In crypto, Bitcoin’s traditional four-year cycle broke in 2025, complicating short-term signals. While our near-term view is mixed, we remain long-term bullish, recognizing both the volatility and the structural adoption trends at play.

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