Bull case 

1. Globally, rate cuts could continue to support markets

While central banks around the world did cut rates to more accommodative levels in 2025, many were hoping for more aggressive easing to relieve households and businesses struggling with heavy debt loads.

Inflation and unemployment, while both ticking up slightly, remain relatively low and may give central bankers overseas the confidence to cut interest rates. 

Lower rates are generally supportive of asset prices, particularly risk assets such as equities and property, and can provide a significant boost to your portfolio if you’re fully invested.

In Australia, Nab’s economists now expect the Reserve Bank to lift the cash rate by 0.25% in February 2026, followed by another 0.25% rise in May, taking the cash rate to 4.1% (from 3.6% currently).

2. Corporate earnings growth may pick up

Domestic economic growth, while lacklustre, remains positive and the global outlook improved throughout 2025 as the initial fears of a tariff-induced slowdown ebbed. 

Nab’s Chief Economist, Dr Sally Auld, sees economic growth in Australia continuing to gain momentum into the new year, with respondents to Nab’s business survey in September, also seeing improvements in business conditions and confidence at that time. 

While earnings growth for ASX-listed companies has been modest over recent years in nabtrade’s view, broader economic growth could support company earnings growth. 

At the same time, US equities have reported a fourth straight quarter of earnings growth, with earnings per share growing above 10% per annum, creating momentum into 2026 [1].  
 

3. Not all assets are expensive

While equity markets are broadly priced above their long-run averages [2], there are still opportunities if you know where to look. 

Based on internal nabtrade trading volumes, nabtrade has observed that many investors have been trimming their exposure to sectors that have performed well in recent years, such as financials, and increasing their position in energy and materials. 

nabtrade’s investors are also holding record levels of cash in the hopes a pullback throws up some buying opportunities; the Liberation Day sell-off saw significant buying in quality names that rose sharply in the aftermath, according to internal nabtrade data.
 

Bear case

While there are many reasons to be positive about the outlook for 2026, that doesn’t mean there aren’t inherent risks in the system. Key risks include:

1. Concentration risk

One factor that has become increasingly harder to ignore is the sheer dominance of the Magnificent Seven US tech mega-caps (Mag 7), in both US and global markets. 

At more than 35% of the S&P 500 at end-November 2025, these seven stocks have dominated portfolio returns for investors as their performance has outshone (nearly) all others, adding almost 700% in return between 2015 and 2024 [3].

Even investors with a ‘diversified’ global portfolio may not realise how exposed they are to the fortunes of these companies - at 25% of the MSCI World Index [4], they are also a huge component of many passive global ETFs, and the benchmark for many active global fund managers. 

Although it’s possible that some Mag 7 companies are not particularly expensive based on their potential future earnings growth, a turn in sentiment or any disappointment on earnings growth could have implications far beyond a handful of tech stocks. 
 

2. Trade tensions reignite 

While US President Donald Trump made no secret of his enthusiasm for tariffs during his 2024 election campaign, markets were still shocked at the size and scope of the tariffs unveiled on Canada and Mexico in early 2025, and again on ‘Liberation Day’, when the 10% tariff markets had ‘priced in’ was the minimum applied across the globe. 

The subsequent sell-off in global equities was quickly recouped and many markets went on to reach new highs. But considerable uncertainty about the scope and implications of increased trade barriers may linger in 2026.

In the US, consumer sentiment and forward indicators of demand like freight and trucking have been under pressure, suggesting the real impact of tariffs is still working its way through the US economy. 
 

3. Structural headwinds in the global economy

While markets have been reaching new highs, economists have been increasingly concerned about challenges facing some of the world’s largest economies. 

The US fiscal deficit was 5.9% of GDP for the fiscal year ending Tuesday 30 September 2025 - that has only been exceeded eight times since the Second World War [5] (with those years clustering around the Global Financial Crisis in the late ‘90s and the pandemic in 2020, when government spending increased to offset a collapse in economic demand). 

There is growing concern that the US may enter a ‘death debt cycle’ as interest repayments of government must be met by borrowing, rather than revenues [6].

As populations age and fewer workers are tasked with paying tax to fund increasing pension and healthcare costs, more economies are struggling to balance their budgets, with ensuing political challenges.
 

Conclusion

Interestingly, more investors have attempted to hedge against these risks by diversifying into assets such as gold and cryptocurrency. 

Gold has performed spectacularly well in this environment, but many investors continue to view it as a form of ballast in the case of a sell-off and may not have trimmed their positions. Cryptocurrency has not fared so well, judging by falls in the Bitcoin price  in late 2025.

As many commentators have noted over the years, markets must climb a wall of worry to reward investors for their patience and fortitude. For those investors who stayed the course in 2025, the year was surprisingly rewarding. Let’s hope the same can be said of 2026!

From ASX 

ASX Content On-Demand provides links to ASX podcasts and webcasts that cover a range of investment topics, featuring market experts. 

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[1] Source: FactSet, ‘Earnings Insight’, 21 November 2025.
[2] https://worldperatio.com/
[3] FactSet, Nov 2025
[4] MSCI World Index
[5] Monthly Budget Review: Summary for Fiscal Year 2025 | Congressional Budget Office
[6] Ray Dalio warns debt crisis is 'imminent' because foreign governments may stop buying | Fortune