Words on What to Expect in 2026

In this episode of Words on Wealth, CIO Tim Rocks is joined by Gerard Minack of Minack Advisors to discuss the global outlook for 2026. They examine why the US economy remains well supported despite political noise, the role of policy stimulus, and risks around tariffs and central bank independence. The conversation also looks at whether the AI theme is starting to fade, what that could mean for equity markets, and where opportunities may be emerging beyond the US. Closer to home, they discuss Australia’s economic backdrop, commodities, and how inflation uncertainty is shaping expectations for the RBA. Tune in to find out more.

This episode is also available on Apple Podcasts.

Introduction

Welcome to Words on Wealth, a podcast by Evans and Partners that unpacks the key trends and opportunities shaping markets, the economy and your financial well-being. Join us as we make sense of the issues that matter most to you.

Tim Rocks

Hello, and welcome to Words on Wealth. I’m Tim Rocks, Chief Investment Officer. Today, we’re going to start the year as we have done for the last few years now with ⁓ discussion with Gerard Manack, one of our major advisors from Macrofront. Welcome, Gerard, and I hope you had a good break.

Gerard Minack

I did indeed, Tim. Good to be back on

Tim Rocks

That’s great. Well, look, there’s plenty to talk about. Trump is certainly making the macro fun. let’s start there. ⁓ Maybe not on some of his more crazy political stuff, but I think the where the US economy is and where it might go, given some of the stuff that he’s talking about is quite interesting.  So yeah, give us your view. US economy, does it get better or worse from here? And what role is some of these Trump policies playing in that?

Gerard Minack

Yeah, thanks, Tim. Look, the US economy probably ended last year a little bumpy because of things like the government shutdown. But once we get through that turbulence in the report of data, I think this year looks pretty solid. ⁓ If you think about all the things that can affect growth, we have had some Fed rate cuts. We have had bond yields fall in the US. The 10 year yields basically been in a four to five percent range.

For 18 months, it’s broken through the bottom end of that range. Energy prices are down, which is very important for Americans. Every time they fill up their SUVs, they’re getting more change in their pockets. policies loose. The one big, bill is going to introduce some tax incentives for investment and tax cuts as of the 1st of January. And the dollar’s down, the US dollar that is. So the dollar fell around about 10 % in trade-weighted terms last year, and that will make US exports more attractive overseas and slightly reduce the attractiveness of foreigners imports to the US. So it’s almost a full court press stimulus. And I think, know, 2026 could be a reasonably solid growth year for the US. I don’t have too many concerns on that front, unless, and I’ve got a caveat, everything I say about the US, it is subject to Trump risk. Unless he does something truly odd, ⁓ I think the US looks fine. And let’s not forget, it’s absolutely in his interests to have the economy humming the midterm elections in November this year.

Tim Rocks

Yeah, I think that’s right. And some of the other things that he’s focusing on, I mean, clearly, he wants to stimulate the housing market, he sees that as an opportunity. There was that thing where he was trying to buy some bonds, US sorry, some mortgage bonds to get the mortgage rate down. Some discussion of those credit whether that happens or not, it’s matter. But I think the statement of intent, as you say, is there to do everything you can have the economy humming by November.

Gerard Minack

Yes, I mean, so what you don’t want is big shocks to the system, like we saw, be fair, temporarily after Liberation Day last year. So you’d like him to go a little quieter on tariffs. You’d prefer him to back away from the confrontation with the Fed because, you know, any threat to Fed independence could be destabilizing, particularly in long-rate markets, so treasury bonds could be adversely affected if they felt Fed independence was under threat. But for now I’d characterize these things as, know, tail risks. My base case is that the economy should be reasonably solid in 2026.

Tim Rocks

Yeah, yeah. And actually, perhaps the other one, what we didn’t mention is that at the margin of, subject to this Greenland thing, but at the margin, tariffs are actually sort of going down now rather than up.

Gerard Minack

Well, two important policy points have got the Supreme Court hanging over our head. One is what they adjudicate on ⁓ the whole tariff regime that Mr. Trump’s introduced since Liberation Day. And the second one concerns whether Mr. Trump’s got the right to fire a Fed governor. So the case regarding Fed Governor Lisa Cook. Now, I am no lawyer, ⁓ but the lawyers I read suggested on the tariffs, they’re likely to be knocked down.

And on Lisa Cook, the Supreme Court is likely to reinforce the Fed’s independence. So that would probably be a pretty good mix of outcomes for markets because on the one hand, they’d be less worried about a rupturing of Fed independence. And on the other hand, a reduction in tariffs and potentially a refund of the tariffs already collected would actually add to fiscal stimulus in the early part of calendar 26.

Tim Rocks

Yeah, yeah, yeah, that’s right. All right, and rest of the world. I mean, I guess that was a bit of a surprise last year as well. I mean, Europe wasn’t really, really strong, but was probably better than expected. And I think the view is that that part of that reflected, being forced out of their inertia by Trump Any thoughts on whether the rest of the world is going to be contributing to growth?

Gerard Minack

Yeah, broadly speaking, I the rest of world looks fine. There’s one exception I’ll come back to. But what we’re generally seeing in other developed economies ⁓ last year, most central banks were easing policy and we’re seeing fiscal policy being loosened in a number of places. I’d argue most importantly in Germany ⁓ and Japan. But we also saw some back down on some fiscal reforms in France. So you’re going to have looser monetary policy, looser fiscal policy in two of the three most important developed economies, Germany and Japan. And although the greenback is down, which means that the euro and the yen are up against the dollar, that sounds like a headwind for them. At the end of the day, a weaker US dollar stimulates the rest of the world, primarily because the rest of the world’s borrowed a lot of dollars.

And if the dollar goes down, effectively eases the rest of the world’s debt burden. And that’s also stimulatory. So the rest of the world overall looks good. The one area that I’d have some concerns about is China. mean, China, well, they just reported they grew 5 GDP in calendar 2025, which by coincidence was exactly what they were targeting. I mean, in other words, we have to take their data with a pinch of salt. All the signs are, however, that their economy is fairly Effectively, China has turned Japanese. It’s got a lot of the same problems that Japan did after its bubble economy burst. And the only thing that’s been keeping China ticking over over the last little while is the growth in what is already humongous trade surplus. And I just don’t think that’s a feasible way for China to grow sustainably. The rest of the world is going to push back against those large, well, from our perspective, deficits. Chinese surpluses, our deficits. So if there is pushback and more protectionist measures, that means China really could struggle. ⁓ look, that aside, ⁓ global growth looks set to have a fairly respectable 2026.

Tim Rocks

Okay, well, let’s then move on to markets, start big picture. I think a benign to improving global outlook, you’d have to say your first thought is that’s pretty good for equity markets. so I guess that’s your first question, whether with that or not. But then it’s what does it benefit most, I guess, you know, US actually underperformed last year, Mag 7 actually underperformed last year. Is US still the place to go? And if so, you know, do we see that sort of broadening of the US market returns, you know, really kick into gear next year, maybe get some small caps, some more sectors really stepping up? Do you think that’s the playbook or how do you see things playing out?

Gerard Minack

The biggest single issue for global equity investors is whether the AI thematic remains dominant. If it does, then I’m highly convinced that US equities will continue to outperform. And if US equities continue to outperform, by the way, I suspect the US dollar remains pretty solid. In other words, recoup some of the losses it made last year. mean, last year was a demonstration of the fact that the greenback and US equity performance are highly correlated when US equities had their big tumble, roughly in the period after Mr Trump’s election up until Liberation Day, that was the period of concentrated dollar weakness. If on the other hand, the AI thematic flames out, then I wouldn’t expect a market crash. But I look back and look at what happened when the TMT bubble burst in 2000. The team’s tea stocks got absolutely hammered from the peak in March 2000 to very late in calendar 2000, the NASDAQ more than halved. But here’s the lesson, the market XTMT was up 25%. So what we effectively saw was not an overall collapse in equity performance, we saw a major rotation. And if we get AI thematic flaming out, I think you’d see two important rotations. Within the US market, see non-AI, related stocks outperform the AI related, which doesn’t quite line up with Mag 7, but there’s a lot of overlap there. But the biggest story for me would be that the rest of the world would start to outperform or continue to US. Let me give you some thoughts on the AI. I do think we may be in the end of that thematic driving equities. Now, this is a view not based on any assessment of how transformative AI will be as a technology. I think the mistake, however, that investors are making is by assuming that the provision of AI services is going to be very, very profitable. I think it’s likely to be a much more contestable, lower margin business than what markets are now expecting. And that means the returns on this absolute torrent of investment now underway in the US is going to disappoint investors.

If they sniff that out, if they have a show me the money moment, then we could see AI related stocks start to derate. What we’re already seeing, and this has been apparent over the last three months, is investors have become much more discriminating when they look at the big AI names. Overall, basically moved sideways since 1st of October. So you’ve had three months where these really big companies and aggregate underperformed.

The more important point is the dispersion. You’ve got a stock like Alphabet that’s up 30%. You’ve got another stock like Oracle that’s down 30%. So once investors start to become more discriminating, you can sort of get the hint that they, I’m not saying they’re falling out of love with the story, but the period of maximum, undiscriminating bullishness is fading. And that to me signals that we’re reaching the end of this particular phase of the AI investment story.

Tim Rocks

yeah, I think investors are thinking it through a bit more as well. So you’re also seeing that perhaps those second derivative winners are starting to benefit a bit more too, be that the electricity chain and copper has been a spectacular one there. And also the broader semiconductor train, know, the fact that the South Green Mark was up 75 % last year till they were thinking about, well, regardless of who wins in the US, they’re all gonna need more semiconductors. So yeah, I think it’s definitely, even if it’s not over, I think the investors reaction to it has definitely changed a little.

Gerard Minack

Yes. So if we see in a sense the AI, AI door fade, then where do people go to? Well, if you’re a dedicated US investor, then you obviously go elsewhere in the US equity market where macro conditions look relatively solid and already year to date. I know it’s early, so let’s not put too much weight on the performance and the first fortnight in the US. tech stocks in the US are down. The best performing three sectors in the US are industrials, materials and energy. old economy sectors.

Tim Rocks

And also small caps have outperformed large caps, which we’ve been waiting for for about three years.

Gerard Minack

and value is outperforming growth. we are seeing a rotation there. But I think the more important rotation will be people moving out of the US into the rest of the world. And once again, that’s something that we’re already getting a hint of year to date. The global equity market, ex-US is up 4%. US equities are up 1.5 % year to date.

And that makes sense. If you agree with me that the rest of the world looks an okay place, perhaps aside from China, the fact is if you look at valuations, whatever you want, you can probably get it cheaper outside the US. And to illustrate that point, I did a little exercise last week. I got every S &P 500 company. I got every MISCI World XUS company. So there’s about 750 of those. 1250 companies, I rank them by their expected two year EPS growth. And then I put them into buckets from the fastest growing 10%, bucket, bucket, bucket down to the lowest growing 10%. I lifted up the lid on every bucket and I looked at the valuation of US equities in that bucket compared to rest of world equities in the same bucket. In other words, I’m comparing companies that have got the same expected growth rates over the next two years.

In nine of the 10 buckets, US companies were much more expensive. In fact, in the fastest growing bucket, US companies had a 25 % P.E. premium. And I’ve been talking to clients about this for some time and one client, I was up in Asia end of last year and they piped up and they said, I’ve got a great example of that. Two very similar companies where the US version is 20 % more expensive than the the domestic equivalent. said, what are the companies? He said, actually, it’s the same company. It’s TSMC, the world’s preeminent chip maker. It’s got a dual listing. It’s listed in Taiwan and on New York. And the New York stock trades at a 20 % PE premium to the Taiwanese stock. So it just underscores the Whatever you want, you can probably find it cheaper outside the US. The obvious exception is the really big AI companies, but if we agree that they are fading as a dominant thematic, then there are bargains to be had outside the US.

Tim Rocks

Yeah, yeah. Okay, so I agree with that conclusion. So it’s to, there are opportunities in offshore equities, but we need to be selective and broader than we have been for some time.

Gerard Minack

Yes, and I’d possibly steer away from ⁓ China because the macro doesn’t look good. The politics are a little fraught and ⁓ they could be subject to more protectionist measures.

Tim Rocks

Yeah. Okay. Perhaps finish with some observations on Oz, maybe macro first. I mean, the macro looks okay to me here. Do you agree with that? And do you share the view that RBA is going to maybe hike at some point this year?

Gerard Minack

I think the macro looks okay. We’ve got to remember that I think 18 months ago, real household disposable income had just experienced its largest ever four quarter decline. Now from that starting point, every which way was up. And if you think about what’s happened over the last 18 months, that’s improved consumer finances. Well, we’ve had inflation fall and yes, I appreciate it’s not backing to the RBA target zone yet, but it fell from a peak of over 6%, which was crushing real incomes to now something a bit over three. We’ve had tax cuts and we’ve had rate cuts. household income has had a real tailwind and you can see that in the perkiness in consumer spending. So that’s good news. Housing is picking up a little. I won’t get carried away with it, but it is picking up. That may continue. And one of the benefits that we could see assisted is that as some of the really large state government infrastructure projects wind down, we’ll have tradies freed up to move from those projects where they were paid a premium to come back and make it a bit more affordable to build more homes for private people. Commodity prices look like they’re going up unevenly, but net-net, that’s always good for Australia. I particularly focus on base metals precious metals, which are…value of our gold exports have tripled in the last 18 months. And employment growth remains strong as does migration, which I’m a bit ambivalent on, but at the end of the day, does add to GDP. So the macro looks good. I don’t think that is a compelling case for the RBA to hike. Look, I’ll be honest. We’ve seen expectations for RBA policy be whipsawed over last two or three months. And I think the whipsawing reflects a couple of unusual factors. The first is we now have monthly inflation data. So we’ve got monthly opportunities for inflation numbers to knock us about. And I just caution a little bit that these numbers, I won’t call them experimental, but there’s still issues about seasonal adjustment. And we saw when the October number was above expectations, the market got a lot more hawkish. And then November came in closer to forecast.

That’s hopefully the RBA isn’t as whipsawed as the market’s been by this incoming news. But then the second thing, and this complicates it for us as analysts, ⁓ you and I, Tim, have been around a long time. I don’t think we’ve ever had an RBA leadership that’s been a less well-known quantity to domestic analysts. Because typically when going all the way back to McFarlane or Glenn Stevens or Phil Lowe, They’d been in the public eye, at least from an RBA watcher’s perspective, for 10 plus years before they became the governor. They were first assistant secretary, then deputy gov, blah, blah. Well, look at the key RBA personnel. mean, Michelle Bullock, yes, she’s an RBA veteran, but she was never a frontline policy person. deputy gov came from the Bank of England, so effectively arrived at unknown quantity. And the assistant gov responsible for macro, came from a private forecasting firm. So we don’t quite know how to calibrate their statements. I guess in their defense, they’re probably not yet expert at how to massage market opinion. So in other words, we’re getting whipped around by random monthly data and then also whipped around by statements from people that we don’t quite know how to read as accurately as we normally do senior RBA officials.

Tim Rocks

Well, I would add to that that monetary policy now falls to a board and rather than an individual too. We don’t quite understand that dynamic.

Gerard Minack

Exactly right. So that means that I probably got a little less confidence in an RBA call than I usually would. But look, if I was sitting there and if I was a billboard member, I’m not. But if I was, I’d be probably assuming that rates are going to be on hold through most of this year. ⁓ And therefore what the market is pricing, which is two to three hikes, I think is on the hawkish side. mean, I can see scenarios where that does actually happen, but it would not be my base case. ⁓ so I think rates on hold, unless we get some nasty inflation news is my operating assumption, which is, you know, if that is the reality, then we’ll see some pressure come off longer rates as people sort of flatten out their expectations for what the RBA will do this year.

Tim Rocks

All right, great. Gerard, we should leave it there. But hey, you know, it’s a great time to be macro guy. Trump is making it very entertaining. And yeah, I think there’ll be lots to talk about throughout the year. But thank you very much for your time now.

Gerard Minack

You’re welcome. It could be a bumpy ride and we will not run out of things to talk about.

Tim Rocks

Right. Thanks all. Bye.

Disclaimer

This podcast was prepared by Evans and Partners Proprietary Limited AFSL number 318075. Any advice is general advice only and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Where this presentation refers to a particular financial product, you should obtain a copy of the relevant PDS, TMD or offer document before making any investment decisions. Past investment performance is not a reliable indicator of future investment performance. Directors, employees and officers at Evans & Partners and its related entities may have holdings in securities listed. Any taxation information is general and should only be used as a guide.