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WisdomTree Insights
Overall, 2026 looks like a year where the cycle stays supportive, but the market becomes less forgiving. Easier monetary policy across much of the world, resilient earnings expectations and improving domestic demand in parts of Europe and Japan support a constructive baseline. In a more mercantilist world, policy choices and geopolitics increasingly feed directly into earnings durability, supply chains, capex and discount rates.
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Overall, 2026 looks like a year where the cycle stays supportive, but the market becomes less forgiving. Easier monetary policy across much of the world, resilient earnings expectations and improving domestic demand in parts of Europe and Japan support a constructive baseline. In a more mercantilist world, policy choices and geopolitics increasingly feed directly into earnings durability, supply chains, capex and discount rates.
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The Iran conflict is intensifying, not fading. Markets are now dealing with an effectively closed chokepoint, direct strikes on commercial vessels, a harder Iranian leadership line and a US administration that is signalling strategic goals matter more than near-term oil pain. Consequently, the bar for central-bank easing is higher, the path to earnings downgrades in energy-intensive sectors is becoming clearer, and the investment debate is now much more about how long the disruption lasts.
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Index resilience is masking a powerful rotation. As real yields stay elevated and AI investment reshapes sector dynamics, capital is moving away from crowded growth into cyclicals and value-oriented companies with durable cash flows tied to the real economy.
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Japan’s snap election gave PM Sanae Takaichi a dominant mandate, lifting equities on expectations of faster fiscal action and strategic investment. Bonds sold off on issuance concerns, while the yen strengthened, reflecting a pull toward higher yields and improved political clarity. Governance reforms and broad earnings support the equity case, with hedged exporter exposure helping reduce FX noise.
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A wave of shocks has driven several asset classes higher in 2025. Precious metals, European defence, rare earth miners, the nuclear revival and Japanese equities stand out as top performers, with structural tailwinds suggesting their strength could extend into 2026.
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Japan’s shift toward higher rates is accelerating the unwind of the yen carry trade, raising volatility across global markets. As funding costs rise, the key question is whether the unwind is gradual or abrupt, and each path shaping FX moves, liquidity conditions, and cross-asset risk differently.
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