Annual Outlook 2026
Review: Disruptive times
A look back at 2025 and ahead to 2026 once again cannot get by without making (many) references to the 42nd/44th US president. Everyone anticipated disruption under a Trump 2.0 administration, but what it has actually delivered despite no one having asked for it probably has startled even most of the last remaining optimists. The Trump administration has served up nothing less than a sea change that is challenging traditions which were once believed unshakable (the transatlantic partnership), is forcefully rolling back previous economic achievements (globalization), and above all is putting America first. Breakneck speed is just as much a part of its strategy as lecturing about “who holds the cards” is. By the middle of 2025, Donald Trump had already issued as many executive orders as his predecessor Joe Biden did during his entire four-year term as president. Trump’s bullying and blindsiding tactics in domestic and foreign policy under the slogan FAFO (F*** Around and Find Out) have not always been successful. At times, there have even been some TACO (Trump Always Chickens Out) climbdowns, and it took only a few months for Trump to find his ultimate trade-policy nemesis in China’s President Xi. Nonetheless, a mere year after Trump’s return to the White House, the pile of shattered porcelain has already reached towering heights. There will be no hard reset to start over again, and that particularly applies to Trump’s tariffs, even if the US Supreme Court questions their legality in hindsight.
New trade world | Back to the 19th century
Effective average tariff rate on US imports
Sources: The Budget Lab at Yale, Kaiser Partner Privatbank
Financial markets in 2025 soon stopped letting themselves be perturbed much by Trump’s all-caps tweets. His “Liberation Day” announcement of his new tariffs regime, which did not even spare the Heard and McDonald Islands, admittedly caused short-term disgruntlement, but in the end left just another “V” on stock index charts. The ensuing rally was driven in part by easing monetary policy and sustained AI euphoria. Doubts about US companies’ technological edge in artificial intelligence lasted for only a (DeepSeek) moment. However, concerns endured about the narrow concentration of the US equity market, where the ten largest stocks by now account for more than 40% of the S&P 500 index. Investment advisors’ constant preaching to diversify asset portfolios paid off in 2025. Gold (+60%) was a return turbocharger, and (US) government bonds acted as a buffer precisely when stocks briefly corrected. It paid this time for US investors to diversify also into international markets and emerging economies, which outperformed thanks to additional forex gains. However, the weak US dollar was a brake on performance for investors with the euro or Swiss franc as their reference currency, though most of them will likely forgivingly overlook that in view of the positive final bottom line in absolute terms.
Overdue comeback | Good performance even without the USA
Performance of stock indices since January 1, 2024 (in US dollars)
Sources: Bloomberg, Kaiser Partner Privatbank
Outlook: The curse and blessing of artificial intelligence
Looking ahead to 2026, there’s at least one prediction that doesn’t require a particularly well-functioning crystal ball: the subject of artificial intelligence will again continue to furrows brows, cause worry wrinkles, and raise a lot of question marks – answers or chill pills won’t be forthcoming for all of them over the next 12 months. Estimates project that AI could make additional productivity gains of up to 1.5 percentage points per annum possible in the medium term. This impact has hardly been visible thus far, though the massive investments in data centers and the highly creative finance structuring used to fund them have indeed been eye-catching. Mind you, however, they are already giving a boost to economic activity today and, in the case of the USA, they accounted for about one percentage point of GDP growth in the first half of 2025. Only time will tell whether those investments will ultimately pay off for everyone involved or whether AI model developers will suffer the same fate as the aviation industry, where airlines are unable to earn much money due to a lack of differentiation. The road to artificial general intelligence (AGI) or even superintelligence is not devoid of stumbling blocks anyway. A shortage of energy sources and requisite power grid infrastructure is one immediate obstacle. The International Energy Agency (IEA) projects that worldwide electricity consumption by data centers will double by 2030. The AI revolution also poses a huge societal challenge. The consequences for the employment market are already beginning to take discernable shape today. Layoff announcements specifically citing AI efficiencies as the primary reason are becoming more frequent, and university graduates are finding it increasingly harder to get a foothold in the job market.
No (US) recession | Thanks in part to the AI turbocharger
Consensus economic growth estimates 2026
Sources: Bloomberg, Kaiser Partner Privatbank
However, AI euphoria has outweighed that thus far on the equity market. It could jump from chip manufacturers and hyperscalers over to other sectors in 2026 and put the equity bull market on a wider foundation. Abundant liquidity and the prospect of further deregulation efforts in the USA are likely to put a tailwind behind the markets, and the extant skepticism among many investors is bound to as well. Expedient optimism prevails only among Wall Street analysts. Staying true to themselves, they again anticipate – as they so often do – a 10% gain on average for the US equity market in 2026. However, investors should view point predictions of that kind – be it for stock indices or other variables – more as entertainment than as a basis for their investment strategies, which should be long-term-minded and diversified and should pay no attention to the next news headline. Investors who go about their business with this mindset will weather also the next stock-price correction well and will be able to continue to reap the fruits of the still relatively young equity bull market.
No red flag… | …from the statistics
Duration of US equity bull markets, in months
Sources: Bloomberg, Kaiser Partner Privatbank
USA: A lame duck in the White House, or not?
The next election is always just around the corner – nowhere in the world is politics more clockwork-like and more driven by the election calendar than in the USA, where the next midterms are already on the agenda in autumn 2026. The slim majorities held by the Republicans in the House of Representatives (219 to 213) and in the Senate (53 to 47) heightens the risk of them losing control of Congress and facing a lame-duck scenario during Donald Trump’s final two years in office. Since the mood of Americans in the summer months is what typically decides elections, the US president has around a half-year left to score points with voters on issues that matter to them and to bend the trend curve of his public approval ratings upward. Voter sentiment is particularly being hammered at the moment by (challenging) affordability, at least among consumers in the bottom half of the wealth distribution. Diagrams displaying two divergent lines in a K shape have been circulating by the dozen in recent weeks among economic analysts. While the richest 20% of Americans have been profiting from the rally on the equity market by virtue of their asset wealth and by now account for almost half of all US consumer spending, a large part of the US population is living paycheck to paycheck.
K-shaped evolution | Social dynamite?
US stock market and consumer confidence
Sources: University of Michigan, Kaiser Partner Privatbank
A change of mood is needed, and it doesn’t seem impossible to bring that about, even if the current K-shaped economy won’t quickly morph into a different letter. In perfect timing with the upcoming midterm elections, the fiscal stimulus from Donald Trump’s One Big Beautiful Bill (OBBB) Act is about to take effect. More generous depreciation allowances for businesses and larger tax deductions for households look set to boost GDP growth by a good half of a percentage point in 2026. The tax breaks will once again disproportionately benefit wealthier households. However, never underestimate the Trump administration’s ingenuity when it comes to pleasing less well-heeled consumers as well, even if the 2,000-dollar dividend checks funded by tariff revenue will probably remain just an idea. The tariff rollbacks on food items like coffee, meat, fruit, and vegetables have already brightened consumers’ pocketbook feelings. Finally, the president’s predilection for laissez-faire policy prescriptions will likely also have an appreciable though hard-to-quantify boosting effect on US economic growth. Companies in the financial services, transportation, energy, and raw materials sectors stand to be the main beneficiaries of deregulation. However, since energy and ecological standards are to be largely dismantled, the biggest casualty will be the environment.
Unsustainable | US public finances are spiraling out of control
US federal revenues and expenditures (as a % of gross domestic product)
Sources: Congressional Budget Office (CBO), Kaiser Partner Privatbank
As is so often the case, the measures that have already been implemented to stimulate economic activity and sentiment, as well as others that may additionally be forthcoming, do not come free of charge. They have to be funded. The original claim made by the White House that the gushing tariff revenue stream can cover all of the costs of the OBBB has since been pruned to 25% to 50% at best by the fiscal watchdogs at the nonpartisan Committee for a Responsible Federal Budget (CRFB). Hence, the US federal debt trajectory is pointed sharply upward. The federal budget deficit exceeded 6% of GDP again in 2025 and is thus at a Great Financial Crisis or COVID pandemic level, but without an acute crisis having to be confronted at present. The Department of Government Efficiency (DOGE), which started out with zealous verve, also was unable to turn the deficit tide. Instead of the USD 2 trillion of savings envisaged, only around USD 100 billion of expenditure cuts actually materialized in fiscal year 2025 and was more than offset by increased spending in other areas. Unless there’s a change of course, the federal debt pile looks set to swell from around 100% of the USA’s annual economic output at present to 120% in less than a decade. Interest payments by now have become a bigger budget item than spending on Medicare or defense. Further interest-rate cutting by the US Federal Reserve won’t change that arithmetic anytime soon because almost 80% of US Treasury bonds have a term to maturity of more than two years. Since a budget retrenchment is theoretically possible and is hindered mainly by a lack of will, the financial market still has faith in the US dollar and Treasury bonds. However, it is easy to imagine a future in which the market compels the US government to implement painful budget consolidation measures. The fact that hedge funds in the Cayman Islands by now have become the biggest investors in US Treasurys doesn’t make a scenario of that kind any less probable.
Europe: Under pressure
Looked at from a bird’s-eye view, the economy in Europe is likely to have grown by around +1% on the whole in 2025. However, hiding beneath the solid surface, there are still some huge differences between individual countries. Spain and Ireland, the island of bustling growth, brighten the economic growth statistics, whereas the Eurozone’s heavyweights struggled again in 2025. Germany was impacted disproportionately by the Trump tariffs, but at the same time is confronted with an accelerated erosion of the country’s manufacturing base. Germany’s automotive industry faces a threat of losing relevance and being overtaken by China at least in some key areas, and the Middle Kingdom has gone from customer to competitor in other industrial goods sectors as well. Germany’s capital goods trade balance with China, which has since turned deeply negative, tellingly reflects this sea change. France, meanwhile, was wracked in 2025 by the kind of political instability that one heretofore had been more accustomed to seeing in Italy. Italy, on the other hand, shined with continuing stability, which is now being recognized also by credit rating agencies.
The end of an era | Germany needs to reinvent itself
Germany-China capital goods trade balance, in EUR million (12-month moving average)
Sources: Bloomberg, Kaiser Partner Privatbank
After three years of virtual standstill, there are now hopes for the first time in a long while that former growth engine Germany will shift a gear higher and pull the region with it in 2026. Although the Merz administration’s reform zeal fizzled out after a few months, fiscal stimulus in the form of stepped-up infrastructure and defense spending has already been set in motion and could boost economic growth by an additional 0.5 of a percentage point in both 2026 and 2027. However, the government in Berlin shouldn’t paint this cyclical acceleration to be rosier than it is – Germany’s potential growth rate by now is well below +1% per annum, and structural reforms are urgently necessary. The government of Germany has at least one advantage, though: thanks to its spending discipline in the past, it now has fiscal leeway that many neighboring countries can only dream of today. So those countries – like France, for example – will face mounting pressure to tighten their belts and seriously cut expenditures. The countries of southern Europe also have to keep an eye on their public budget deficits. They were the biggest beneficiaries of the NextGenerationEU recovery fund, a source of financing that will gradually run dry.
The standstill is over | Better near-term prospects for Germany
Gross domestic product, indexed (2020 = 100)
Sources: Bloomberg, Kaiser Partner Privatbank
Economic activity in 2026 will also get a tailwind from European Central Bank (ECB) monetary policy, which has since become much more accommodative: falling interest rates relieve pressure on households and businesses, and they create leeway for a gradual pickup in consumer spending and corporate investment. European consumers’ willingness to spend has been hesitant lately, and the household saving rate recently was as high as last seen during the pandemic, due in no small part to the anxiety-inducing economic and geopolitical news flow. The pent-up demand could cause a surge in spending in the quarters ahead, not least because inflation has returned to normal in the meantime and no longer tops peoples’ list of concerns, and because wallets are a bit fuller now thanks to an increase in real wages. An end to the war in Ukraine would also be conducive to improved consumer and business sentiment – that scenario is not a sure thing, but is becoming increasingly more probable.
Switzerland continues to play a unique role not only on the foreign policy front, but also with regard to monetary policy and economic activity. The inflation rate in Switzerland dropped back to the zero line at the end of 2025, though that is probably only temporary and is unlikely to bother the Swiss National Bank (SNB) at all. Swiss entrepreneurs were intermittently the ones with worry-creased brows due to the 39% tariff hammer dropped on them by the US president, though that has been eased in the meantime. The SNB’s monetary policy, unlike that of other central banks, turned accommodative already quite some time ago. Consequently, the KOF Swiss Economic Institute’s sentiment indicator recently climbed to its highest level in two years, heralding strengthening growth dynamics. All in all, despite existing challenges like the persistently strong Swiss franc, the state of the economy in Switzerland once again looks unspectacularly solid.
China: Multiple challenges
The government of China will likely have reached its +5% GDP growth target right on the money again in 2025 according to Beijing’s official data, just like it did the previous two years. However, the credibility of that pinpoint landing is debatable – doubts about the quality of the data remain appropriate and are regularly nurtured by insiders. Moreover, the correction into its fifth year on the Chinese real estate market continued in 2025. Estimates calculate that it shaves around 2 to 3 percentage points per annum off China’s economic growth. Despite onerous tariffs, China’s exports engine is running at high revs just as much as the cutthroat competition in the country’s high-tech industries is, but those two pillars of growth do not form a sufficient counterweight. Instead, the massive overproduction causes sustained deflationary pressure. Meanwhile, personal consumption in China remains too low to take over the growth rudder. The share of China’s gross domestic product accounted for by consumer spending has risen by only 2 percentage points over the last decade to 40%, which is much lower than in typical OECD national economies, where personal consumption expenditures make up a good 50% to 55% of GDP on average. Sporadic government stimulus measures such as cash-for-clunkers rebates and childcare subsidies have heretofore provided only short-term boosts that quickly fizzle out, but have not brought about the change in mindset among the Chinese public that Beijing desires. The Chinese consumer savings rate remains extremely high at above 30%, motivated by job insecurity, a weak social safety net, and inadequate public provision of healthcare and education services. Chinese consumer sentiment has been in the cellar lately. The booming stock market in recent quarters has done little thus far to change that.
A matter of trust | Chinese consumer sentiment remains in the cellar
Chinese consumer confidence index
Sources: Bloomberg, Kaiser Partner Privatbank
Strengthening consumer spending is therefore likely to receive a lot of emphasis in the 15th Five-Year Plan (for the 2026–2030 period) to be unveiled in spring. The leadership in Beijing has by now come to view personal consumption as not just an economic elixir, but also as a strategic imperative for China’s long-term economic sustainability and security. In the ever-changing geopolitical environment, it has become increasingly untenable to depend primarily on foreign demand. A recalibration is becoming necessary also because the phenomenal growth of key export sectors like the automotive industry is sparking a growing backlash in the rest of the world just as much as the weak renminbi is. However, the readjustment of the growth engine won’t proceed without friction, in part because the huge debt load of many provinces in China constrains room to maneuver. Nonetheless, the government of China will likely strive to maintain continuity in its official statistics and will probably declare a GDP growth target of +5% again for 2026. That goal hardly seems achievable on a sustainable basis. Economists see China’s potential growth rate dropping to just around +4% from the year 2030 onward at the latest, due in no small part to the country’s shrinking and rapidly aging population.
It’s all downhill from here | China’s potential growth is falling continuously
China’s economic growth and growth target
Sources: Bloomberg, Kaiser Partner Privatbank
China’s external image in the world has improved a bit lately from a low level, but longstanding rivalries (Taiwan) and resurging ones (Japan) are persistent challenges that the country will have to deal with again in 2026 alongside economic and demographic issues. Finesse is still required particularly in China’s relationship with its biggest rival. China’s bilateral relations with the USA have rapidly gone from win-win interdependence barely a decade ago to a zero-sum rivalry and then lately to lose-lose dynamics. The deterioration of trade relations was temporarily halted after Presidents Trump and Xi met in autumn and reached an agreement that the USA would lower its punitive tariffs and that China would largely suspend its export restrictions on rare earth elements for a year. However, in the long-term evolution of China-US relations, this détente phase, which will experience another highlight when the two presidents meet again in spring in Beijing, may very well turn out to be just a pause for breath ahead of the next escalation.
Monetary policy: A puppet at the helm of the Fed?
Will the world’s most important central bank remain independent? With regard to global monetary policy, this is one of the most pivotal questions for the year ahead. President Trump would like a monetary policy dove to chair the US Federal Reserve. It’s uncertain, though, whether he will get what he wants. However, that cannot gloss over the blatant politicization of America’s central bank. Trump will potentially have appointed up to five new members of Federal Reserve Board of Governors by mid-2026 (if the US Supreme Court allows him to fire Fed Governor Lisa Cook). They could exert a deciding influence on the appointment of future regional Federal Reserve bank presidents. Long-time Trump ally Kevin Hassett has been touted in recent weeks on betting markets as having the best odds of succeeding Jerome Powell. Trump, in fact, has hinted multiple times in recent weeks that Hassett is his candidate of choice. All that’s missing is an official endorsement. But why would a freshly confirmed Fed Chairman Hassett want to serve as the president’s puppet? It’s hardly likely that he would want to be remembered as a second Arthur Burns, the Fed chief who lowered interest rates in the 1970s by more than the data plausibly warranted under pressure from President Nixon. Once confirmed and sworn into office, a Fed chairman effectively is independent. Besides, despite all of his criticism, Trump did not fire Jerome (“Too Late”) Powell; doing that would have triggered a storm on the market. Any successor to Powell is aware of those mechanics. And finally, does Trump truly want low interest rates and their attendant consequences in the form of higher inflation? It’s unlikely that he does because inflation is a political poison pill that the Republicans don’t need in the runup to the upcoming US midterm elections. Even if the next Fed chairman were to follow dictates from the White House, they could soon become directives to keep inflation under control.
Never again near zero | Exceptions confirm the rule
Policy interest rates
Sources: Bloomberg, Kaiser Partner Privatbank
The inflation trend, in fact, will be the crucial determinant of whether the US federal funds target rate will stay high in 2026 or will move at least in the direction of the 1% level that Trump desires. Inflation in the USA at last look was running closer to 3% than to the Fed’s actual goal of 2%. But inflation dynamics could change faster than expected. For one thing, Trump’s tariffs may well turn out in the end to be a one-time adjustment in the general price level that will soon drop out of the year-over-year inflation rate. This expectation is backed in no small part by a hot-off-the-press working paper from the San Francisco Fed that carefully examined international tariff policies over the last 150 years. The quintessence of its findings is that tariffs, like all taxes, exert a braking effect on economic growth and have a disinflationary impact. Secondly, core inflation looks set to decline because growth in the key rent price component is visibly slowing and wage growth is decelerating due to a weak job market. And third, artificial intelligence has the potential to become a significant disinflationary force in two ways: it appears destined to not only boost productivity growth, but to also lead to fewer jobs and higher unemployment, at least in the near term.
Inflation worries | To each his own
Inflation rates
Sources: Bloomberg, Kaiser Partner Privatbank
In any case, benchmark lending rates in the USA are unlikely to stay completely motionless in 2026. The European Central Bank’s deposit rate, which currently stands at 2%, also is not chiseled in stone because inflation in the Eurozone threatens to veer downward soon from its present level almost bang in line with the ECB’s 2% target. The place where monetary policy is most likely to stay static is Switzerland, where the Swiss National Bank is loath to reach into the poison cabinet for negative interest rates again. The Bank of Japan, in turn, will be an exception of a different kind in 2026 because the interest-rate trend in Japan remains pointed upward for now.
Equities: Bubble talk
The year 2025 was an emotional rollercoaster ride for many shareholders. In spring, Donald Trump’s new tariffs regime sparked fears about a recession. Within a few months’ time, those concerns gave way to fears about an artificial intelligence bubble. The AI bubble worries are being fueled mostly by the massive investment in AI infrastructure that is being driven by FOBO (the fear of becoming obsolete) on the part of businesses and public policymakers. The question at hand is will those expenditures pay off, or will companies be left in the end with overcapacity that is beneficial to society, but is hardly profitable? Toward the end of 2025 if not before then, the torrid equity rally triggered FOMO (the fear of missing out) and correspondingly low cash allocations, at least among mutual fund managers. However, the bull/bear statistics regarding US individual private investors reflect grave doubts. Despite the steady stream of new record highs on the stock market, the bears in recent months have quickly moved back into the majority even after small share-price dips. Then by autumn at the latest, bubble talk spread also to the mass media. If the alleged AI bubble were to burst in the months ahead, it would arguably be the most anticipated collapse of any bubble in a long time. And that’s precisely why there’s a low probability of an event of that kind happening in the near term.
Stubbornly bearish | Euphoria looks different
S&P 500 index and bull-bear spread
Sources: Bloomberg, American Association of Individual Investors, Kaiser Partner Privatbank
In fact, besides the absence of euphoria, some other classic ingredients of a bubble are also missing, particularly compared to the dot-com era. Back in those days, share prices of US technology firms doubled in a span of just six months, and their valuations were astronomically high. Most of the companies operated in the red, and some of them even had no revenue to speak of. In 2025, the Nasdaq 100 index rocketed by a likewise remarkable 60% from its April low, but the valuation expansion this time is being sustained by dynamic, profitable earnings growth at US Big Tech companies. Most of the hyperscalers like Alphabet, Microsoft, and Amazon are funding their investments out of operating cash flow. Another positive sign is that market participants are definitely differentiating and are not tossing every (tech) stock into the same pot. For instance, the possibly somewhat overambitious investment and financing plans announced by Oracle have lately faced criticism from investors, causing the company’s share price to correct by around 40% in recent months. Finally, another phenomenon commonly observable in the final stage of an investment bubble is non-stop IPOs as vastly overvalued stocks typically get tossed onto a ravenous market in overhyped initial public offerings. The reality today, though, looks different. Although the market for IPOs has fired up again, it hasn’t yet overheated. That could change in 2026 if private sources of capital run dry for AI giants like Anthropic and OpenAI, “forcing” them to go public on the stock market.
Lofty valuation: Is this time (really) different? | A poor timing tool in any case
Shiller price-to-earnings ratio for USA
Sources: Bloomberg, Kaiser Partner Privatbank
“This time is different” – those four words rank among the most expensive ones on the financial market. They regularly get uttered to legitimize price performances and/or fundamentals that have gotten out of hand. And they regularly get heard more and more frequently in the runup to an inevitable stock price crash. However, in the current cycle, in which valuations on the (US) equity market are loftily elevated once again, objectively it has to be said that valuations are indeed relatively high, but corporate earnings growth likewise is far above average. Analysts are projecting continued earnings growth rates in the +13 to +15% range for the S&P 500 index for the next two years. So, US stocks may again climb a proverbial wall of worry in 2026, complete with intermittent setbacks for sporadic dip-buying. However, it will likely pay off for investors to continue to set up their equity portfolios (more) broadly in 2026. In Europe, moderate valuations are intersecting with expected profit growth acceleration supported by a mild pickup in economic growth, fiscal stimulus, subsiding interest-rate and currency headwinds, and abated trade uncertainty. Emerging-market stocks remain historically cheap and could catch up further as international investors gradually rediscover them.
Fixed income: A sound additive again
The year 2025 for fixed-income investors was either great (US high-yield) or a zero-sum game (German government bonds), depending on the region and risk category. Regardless of one’s personal experience in the fixed-income space, in hindsight it has become clear that the painful (and loss-inflicting) return of interest rates to normal during the years 2021 through 2023 also had something good about it: the era of (government) bonds being an interest-free risk is over for the time being. It makes sense for investors with a low to moderate appetite for risk to blend them into a diversified portfolio, in no small part because central-bank policy rate cutting has decreased the attractiveness of money market investments. Moreover, US Treasury bonds in particular resumed exhibiting desirable parachute characteristics in 2025. They delivered price gains when the stock market sputtered, mitigating a mixed portfolio’s losses, especially during the weeks after Liberation Day last spring. The normalized market interest-rate levels are also beneficial looking ahead to 2026 because the prospects for bond prices are asymmetrical. In the event of a sharp rise in yields due to inflation risks or concerns about growing piles of public debt, a breakeven (but not necessarily a loss) would likely occur for 2026 in the final reckoning. If, on the other hand, economic growth slows drastically, double-digit percent price gains may be earnable with investment-grade bonds.
No return to zero interest rates | Except in Switzerland
Yield on 10-year government bonds
Sources: Bloomberg, Kaiser Partner Privatbank
Higher-interest-bearing corporate bonds also haven’t been squeezed dry yet even though their credit spreads are close to multiyear lows and the buffer in the event of rising defaults seems thin, which is warranted to a certain degree by the improvement trend in recent years in many issuers’ credit quality. If a US recession doesn’t occur in 2026, the high-yield segment looks set to perform well again. From a timing perspective, though, there is no urgency to step up exposure to it at the turn of the year: a widening of spreads may present more attractive entry points during the course of 2026. Anyone seeking more yield should additionally take a look at special niches in the fixed-income investment universe. Collateralized loan obligation (CLO) funds and insurance-linked bonds (cat bonds) are examples of alternatives to conventional high-yield bonds. They sometimes deliver better risk-adjusted returns that are practically uncorrelated, usually with only mildly restricted redemption liquidity, albeit with greater complexity.
Thin air | Credit spreads near historic lows
Credit spreads in basis points
Sources: Bloomberg, Kaiser Partner Privatbank
And lastly, a word about those aforementioned piles of debt. They look set to continue to grow higher in 2026 and are a reason why the pre-pandemic bond bull market is unlikely to stage a comeback. One instead can expect to see persistently elevated interest-rate and yield levels. The unsustainable fiscal policies being pursued in many industrialized nations will prompt investors to demand higher longer-term risk premiums, and that is already visibly happening with very long-dated government bonds. Even erstwhile model pupil Germany has to pay around 3.5% annual interest on its 30-year bonds these days. Debt managers have several options for putting public finances back on a sounder footing. Most of them – austerity, higher inflation, or renewed financial engineering by central banks – are unattractive to politicians (and citizens) or demonstrably have an undesirable distorting effect on markets. In order to alleviate at least some of the pressure from mounting interest burdens, many governments have recently been resorting more to (cheaper) financing through short-term bonds. Fixed-income investors should emulate them and keep duration risk on the short side.
Currencies: Another US dollar surprise?
Donald Trump’s relationship with the US dollar is legendary and often quoteworthy. At the start of his first term in office, he insisted that “Our dollar is too strong, and it’s killing us.” In 2025, he said that “I like a strong dollar, but a weak dollar makes you a hell of a lot more money.” One might think that a (US) president cannot influence a currency’s value, especially not through words alone. And yet, the changing of the guard in the White House in 2017 and 2025 was followed both times by a pronounced dollar depreciation. The greenback, as measured by the US dollar index, lost a good 10% of its value in the first half of 2025. It’s arguable that at least a small part of that decline ultimately had to do with the Trump administration’s erratic (tariff) policies. In any case, it’s factually demonstrable that international investors stepped up their use of futures transactions in 2025 to hedge their exposure to US dollar-denominated assets and thus indirectly contributed to the greenback’s slump. The US dollar was vulnerable to a correction anyway because, on one hand, a strong greenback was the consensus view at the start of 2025 and the consensus seldom proves right and, on the other hand, because the greenback was vastly overvalued in most currency analysts’ models.
Is a bottom forming? | To the president’s displeasure
US dollar index
Sources: Bloomberg, Kaiser Partner Privatbank
Now that the overdue counter-movement has taken place and at least part of the overvaluation has been erased, the question now for 2026 is: what’s next? One argument in favor of the dollar is that it has since become deeply unpopular, which augurs potential opportunities again next year for contrarians who swim against the tide of prevailing opinion. Investors well-versed in technical analysis may also rediscover a liking for the greenback. Positive divergences and a potential rounding bottom have been forming on its price charts in recent months. Future monetary-policy developments may also benefit the dollar, particularly compared to its biggest rival, the euro: whereas talk within the European Central Bank has drifted lately in the direction of lowering interest rates, the US Federal Reserve may disappoint market participants’ (and Donald Trump’s) expectations for more rate-cutting in 2026. Finally, a look at economic growth differentials, another key driver of currency exchange rates, argues neither for nor against the dollar – the consensus estimates foresee no big changes in economic growth dynamics for the major rival currencies. And while we’re on the subject of forecasting, currency predictions are a part of that most challenging of disciplines – an accuracy rate of 53% to 55% can already be considered masterly. So, in this sense, readers of outlooks for the year ahead are allowed to be especially critical, particularly with regard to currency forecasts.
Gravity | It’s a law of nature also for the EUR/CHF exchange rate
EUR/CHF
Sources: Bloomberg, Kaiser Partner Privatbank
Speaking of the Swiss franc, one of the easiest currency forecasts is predicting that the franc will appreciate against the euro next year and especially over the long term and will thus cause the EUR/CHF exchange rate, as it is customarily displayed on quotation boards, to fall. Low inflation in Switzerland and the inflation differential versus the Eurozone remain the force of gravity pulling on the exchange rate. The inflation differential continued to average almost 2 percentage points in 2025. Since low inflation in Switzerland is a “law of nature” unlikely to change anytime soon, one doesn’t need a crystal ball to envision EUR/CHF quotations below 90 centimes. As long as the franc’s pace of appreciation doesn’t get out of hand, the Swiss National Bank is unlikely to take any actions to influence the exchange rate in 2026. The SNB currently has no appetite either for currency interventions or for reinstating negative interest rates. So, there is unlikely to be much suspense surrounding the franc. The only thing bringing a little relief from the monotony is the condensed minutes of the SNB’s monetary policy discussions that the central bank started publishing in autumn 2025. But after having read the maiden edition from last October, it has to be said that the arc of suspense has some room for improvement.
Alternative assets: Back to earth
With a surge of more than 60% in 2025, gold topped the asset-class performance rankings at year-end by a wide margin. One has to go back to 1979 to find a comparable parabolic rally. But unlike at that time, inflation is not the main driver of the gold price today. It instead is being fueled by sustained buying interest on the part of central banks for the purpose of diversifying their currency reserves, by fears about a devaluation of paper money as a result of gaping government budget deficits and ever-growing piles of debt, and by a further increase in (geo)political uncertainty that many people are perceiving. That’s the mainstream narrative anyway. Add to it the momentum factor: rising prices beget further price rises as long as investors are not all on board yet. Since there is a lack of good models for a fair gold price justified by the fundamentals, a look at historic price trends helps as a guidepost for getting one’s bearings: in the wake of the massive price gains, the precious metal is currently situated in orange-reddish overheated territory. This at the least is likely to prompt investors to take profits and should mute expectations for the new year. Cryptocurrencies recently have already come back down to earth. Although fewer and fewer market observers are questioning their right to exist as a standalone asset class, that doesn’t make the price performance of Bitcoin and the like a one-way street to the moon. On the contrary, the institutionalization of cryptocurrencies and the profusion of capital that has flowed into Bitcoin ETFs may actually be a hindrance, at least in the nearer term. Investors who jumped aboard the purported rocket to the firmament at a six-digit Bitcoin price altitude may jettison their holdings onto the market when the price of Bitcoin picks up again and could thus delay the flight to new heights that crypto fans consider inevitable.
Recently gone separate ways | Digital gold has decoupled downward
Gold price and Bitcoin price
Sources: Bloomberg, Kaiser Partner Privatbank
The “democratization” of private-market assets continued unabated in 2025. Every midsize private-markets manager wants to get in on the lucrative business with wealthy clients. In the search for investor funds, less affluent (retail clients) are now also being solicited, as exemplified by one German fintech company’s offering that allows people to invest in private equity starting with as little as one euro. Although easier access to a larger investment universe is a welcome development in principle, there are also downsides to that. When illiquid assets get wrapped in semi-liquid evergreen fund packaging, this raises questions about transparency and valuation accuracy, at the latest if and when promises of stable, above-average returns aren’t met. The private credit market, which has boomed in recent years, is particularly vulnerable to nasty surprises of that kind. Whether the bankruptcies in the US automotive industry in autumn 2025 (First Brands, Tricolor) were a fleeting phenomenon or, to quote JP Morgan CEO Jamie Dimon, were more like “cockroaches” presenting early warning signs of bigger problems in the sector is something that only the future will tell. The financial market at least has its doubts concerning this matter and has been trading exchange-listed private credit funds (known as “business development companies”, or BDCs) at a discount to their (alleged) intrinsic value lately. These developments should make investors realize that investments in private markets require a longer time horizon and that diversification is good advice also in this asset class.
Doubts about transparency and intrinsic value | Private credit is being put to a stress test
Cliffwater BDC Index and US High Yield Index
Source: Bloomberg, Kaiser Partner Privatbank
Speaking of diversification, diversifying by investing in alternative assets paid off over the last 12 months, and not just due to the stellar performance of gold and the solid private-market returns. Fair weather prevailed also for liquid alternatives in 2025, like it did the previous year. With the exception of trend-following strategies (CTAs), all hedge fund sub-strategies delivered good returns in 2025. The weather forecast remains favorable for 2026. The alpha winter of the 2010s decade is over. Opportunities for hedge fund managers have increased significantly ever since central banks resumed permitting the free interplay of market forces and as a result of the attendant rise in interest rates and volatility. Whoever would like to continue to earn equity-like returns in the years ahead should consider a larger allocation to liquid alternatives. A well-selected multi-strategy portfolio can fulfill that objective with nerve-soothing low volatility regardless of the performance of financial markets.