Cutting through the clickbait: a clearer look at 2026
Should you ask a barber whether you need a haircut?
Amid the negative sensationalist media headlines – what Macquarie Chief Economist, Ric Deverell, dubs “click bait”– it’s crucial for investors to filter out the noise and focus on underlying economic and business fundamentals. Speaking on December 4, 2025, at an investor briefing for Macquarie clients, Deverell offered a clear, cautiously optimistic view for 2026, suggesting global growth might very well surprise to the upside, driving a positive outlook for risk assets.
Global resilience: beyond geopolitics and tariffs
Deverell pushed back on what he described as pervasive gloom, arguing the current level of geopolitical uncertainty is, in the context of history, “very normal”, adding, sustained periods of complete calm have been rare, and the broader economic and market impacts of these risks tend to be overstated.
With respect to tariffs, trade has been redirected, rather than destroyed. Tariffs are essentially taxes, and although they’ve introduced volatility, their overall impact has been one of trade diversion, with global trade volumes remaining relatively stable rather than collapsing completely. This underlying resilience is a key reason for the forecast of stronger global growth in 2026.
The United States: poised for an upswing
Despite a recent “data void” due to the brief government shutdown, the U.S. growth outlook remains solid. Deverell expects a quick rebound, with the labour market more resilient than many commentators suggest, partly due to immigration.
The Federal Reserve’s stance: The Federal Reserve (the Fed) is viewed as highly supportive, with the market already pricing in a near-certain rate cut next week based on softer labour data. Deverell expects the Fed to continue to be supportive throughout 2026.
Under the “One Big Beautiful Bill”, a significant injection of consumer cash is expected in April 2026, driven by tax returns, which should provide a further boost to economic activity.
The main risk to this positive outlook isn’t a recession, but the potential for the Fed to run the economy too hot in 2026, requiring them to reverse course and start hiking rates aggressively in 2027 to combat resurgent inflation.
China and Japan
China is not expected to be the global swing variable in 2026. While property and retail sales remain weak, the economy’s export sector is strong enough to maintain a sustainable growth rate of around five per cent per annum for the foreseeable future. The positive risk for Australian investors is Beijing’s potential to step in with further stimulus to support growth, which would be bullish for Australian resource exports.
Japan, by contrast, appears to have “normalised.” After a long period of stagnation and deflation-fighting, the transition is a good thing. However, deep-seated demographic issues mean that real gross domestic product (GDP) growth will likely remain weak, suggesting the recent rate adjustments are less about a booming economy and more about a return to normal interest rate settings.
Australia
Local media often focuses on stagnating productivity and a sluggish outlook, but Deverell’s view is much more positive.
Three prior Reserve Bank of Australia (RBA) rate cuts appear to have successfully stimulated a “solid recovery,” though this has led to a challenge: higher-than-desired inflation. Given the recovering economy and sticky inflation, the RBA is expected to be on hold throughout 2026. A rate hike, however, is also seen as unlikely.
Deverell acknowledges the economy remains heavily reliant on the housing sector, where rate cuts have led to a recent jump in prices and a deepening of inequality. However, recent auction clearance rates suggest that house price growth has peaked, and a flat price outlook is likely if the RBA remains on hold. Brisbane and Perth, with stronger population growth, may experience further price gains.
Equities
While traditional valuation metrics make equities look expensive, Deverell cautions against an overly simplistic view. He leans to the ‘this time is different’ camp, noting companies today, especially in tech, are structurally different – less capital-intensive and more leveraged to global growth.
I would add the CAPE Shiller ratio for the S&P 500 looks expensive, partly because its denominator uses a historical 10-year average earnings number, which has been skewed lower by the one-off Covid pandemic.
In any case, Deverell points out that historically, the price-to-earnings (P/E) ratio has a very low correlation to one-year price returns. What truly matters is global growth, and on that basis, valuation is considered good on a long-term, ten-year view.
Deverell’s positive global growth forecast for 2026 leads him to a positive view on risk assets for the year ahead.
The AI Revolution: A boom, not a bust… yet
While Deverell is concerned about an artificial intelligence (AI) bubble brewing – driven by the “Tech Bros” incentive to spend heavily and win the U.S.-China dominance race – he doesn’t believe it will pop in the near future, stating, the theme, “still has further to run.”
The history of technology adoption is clear: profound productivity gains always take a long time to materialise at the economy-wide level. While the impact of AI will be significant, it will take much longer than current market narratives suggest. Specifically, he notes that the U.S. is likely to lead in adoption due to a high-risk tolerance, while Europe will likely be slower due to regulation.
Finally, concerns about massive data centre builds driving inflation through electricity consumption are likely overblown. Their projected contribution to electricity demand growth is relatively low, though short-term bottlenecks remain a U.S. issue, as is the impact of liquefied natural gas (LNG) exports on domestic gas prices.
Risk
The biggest single risk to the global outlook is a U.S. recession, which Deverell believes would most likely be triggered by a peaking and subsequent pullback in tech investment.
Deverell’s message for investors is to look beyond the headlines. The global economy is far more resilient than often reported, with central banks remaining supportive and U.S. and global growth likely to surprise to the upside in 2026, making it a year to embrace risk assets.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
