Beyond The Short-Term Market

IN A DECADE increasingly shaped by geopolitics, fiscal power, and structural transformation rather than traditional economic cycles, long-term perspective has become a decisive advantage for globally oriented investors. Julius Baer's Secular Outlook 2026 steps back from short-term market noise to examine the macroeconomic forces redefining the investment landscape. From the shift toward a multipolar world and the rise of fiscal activism, to the growing influence of political choices on monetary policy and the uneven impact of technological innovation. For an internationally diversified readership accustomed to navigating complexity across borders, these insights offer a framework for understanding how the coming decade may reshape both risk and opportunity.

No. 1 In the new investment paradigm, global diversification becomes a necessity, not an option

Global fragmentation has intensified as national interests surpass global alliances - a stark contrast to the post-Cold war "peace dividend" era, which began in the early 1990s and largely ended with the Ukraine War in 2022. Over the past three decades, the world has shifted from unipolarity under U.S. dominance to an increasingly multipolar order, a trend accelerated by the U.S. tariff campaign, launched in April 2025 by the new Trump administration on a day termed "Liberation Day" by the President. Rather than deglobalization, however, strategic reshoring appears to be the likely outcome.

Indeed, the aftermath of Liberation Day makes several things clear. First, trade wars do not work in a multipolar world-Chinese exports quickly shifted from the U.S. to Asia and Africa, and oil markets barely reacted to punitive tariffs and sanctions. Second, global supply chains are too intertwined, complex, and mutually profitable for countries to fully rebalance their operations, with exceptions limited to sectors deemed critical to national security, such as information technology or energy.

For investors, these dynamics underscore that political and geopolitical forces will increasingly overshadow endogenous market signals, resulting in increased macroeconomic and financial market volatility. This reinforces the case for global portfolio diversification, guided by secular trends and their influence on major investable economies.

No. 2 The consequence of geopolitical rivalry is fiscal activism

Supercharged by two major external shocks, the Covid-19 pandemic and the war in Ukraine, fiscal policy took center stage in the early 2020s when it comes to managing economic cycles. Active industrial and fiscal policies are now core to state-sponsored capitalism, marking a significant paradigm shift from the neoliberal era where fiscal stimulus was used only to smooth out economic downturns. While the U.S. has been prominent in enacting large government programs since 2021, the most significant fiscal policy shift in 2025 occurred in Europe.

The continent has abandoned its dogmatic commitment to fiscal austerity in favor of massive fiscal spending aimed at achieving greater energy and military security independence. Germany's historic fiscal and defense U-turn, aimed at modernizing the country's ailing infrastructure and restoring its defense capabilities, could prove to be a turning point. Another major political commitment arose from the 2025 North Atlantic Treaty Organization (NATO) summit, where member nations committed to a new defense spending target amounting to 5% of GDP by 2035, which is more than double the previous 2% guideline.

The U.S. is not sitting on the sidelines either. The government has recently begun acquiring minority stakes in domestic companies that produce goods deemed relevant to national security. By now, U.S. fiscal stimulus appears to have become permanently procyclical.

No. 3 Fiscal dominance will exert a strong influence on interest rates

In 2022, confronted with an inflation spike for the first time in decades, Western central banks have rapidly reset the cost of capital in the system. In the current context of fiscal dominance, debt sustainability considerations are increasingly feeding into the 'neutral' interest rate equation. Following years of ultra-low levels or even negative interest rates after the Global Financial Crisis (GFC), the sharp tightening though 2022 and 2023 marked a return to the mean for both U.S. federal funds rate and the 10-year U.S. Treasury yield. In hindsight, the 2010s was a truly experimental period for monetary policy.

While private sector strength has supported resilience to a normalized cost-of-capital environment, structural forces that drove decades of interest rate decline-ageing demographics, digital disruption, and extreme financialization-remain deeply entrenched, exerting disinflationary pressure in developed economies. At the same time, record government debt and a rising interest burden-with global debt (public and private) amounting to just above 235% of global GDP in 2024 - are putting pressure on monetary policy authorities globally. Ultimately, interest rates and inflation are political choices. Nowadays, monetary authorities can access an extended policy toolbox, enabling them to actively target longer-term rates if needed, i.e., through yield-curve control or a rebranded form of quantitative easing. 

No. 4 The innovation super cycle will create winners and losers

What distinguishes the current super cycle conjuncture is its pace and breadth. Beneath the surface, we see a convergence of multiple technologies leading to severely disruptive forces; artificial intelligence (AI), the energy transition, and advances in life sciences, among others.

Al remains the fulcrum of market narratives and corporate investment, as Al hyperscalers have led U.S. equity markets to new highs and have committed gigantic sums to Al infrastructure, with power and grid capacity emerging as binding constraints. While Al's disruptive potential may surpass that of the internet, its payoff is anything but straightforward. Generative Al tools are everywhere, yet widespread adoption does not guarantee business transformation or bottom-line impact.

No. 5 China: engineering a sustainable equity bull market

We continue to see broad evidence that China is still in a balance sheet recession, a pattern that usually emerges after the collapse of an asset bubble, which in China's case was triggered by the bursting of the real estate bubble in 2021. The fallout left households with significant unrealized losses, depressing consumer confidence, and driving savings rates above 30%. At the core of the Chinese balance sheet recession is a private sector prioritizing debt minimization over profit maximization despite low interest rates, which would normally encourage new borrowing.

Recent evidence suggests Chinese policymakers now recognize that one of the most effective ways to reflate household balance sheets damaged by the prolonged downturn in the real estate sector is to engineer a managed and sustainable equity bull market. Incentives for listed companies to return cash to shareholders and efforts to institutionalize equity investments aim to shift savings into equities, restore confidence, and boost consumption. To support this transition, the government is likely to prioritize the consumption of services over goods, accelerating the rebalancing of the economy towards domestic demand, with untapped potential in healthcare, finance, and leisure.

Beyond policy, China's structural strengths stand out: growing self-sufficiency, resilient exports despite U.S. tariffs, leadership in electrification, and its progress on the AI front, highlighted by DeepSeek's release in 2025. With power and grid capacity now the main bottleneck for scaling AI, China is responding with rapid expansion of electricity generation and storage, securing a massive energy cost advantage that reinforces its long-term competitiveness.

Viewed together, the trends shaping the current decade underscore a central message: in an environment where politics, policy, and structural change increasingly dominate market outcomes, global diversification and long-term conviction are no longer optional. As fiscal dominance alters the trajectory of interest rates, innovation creates distinct winners and losers, and economies such as China work to re-engineer sustainable growth, investors will need to look beyond traditional benchmarks and familiar geographies. The Secular Outlook 2026 reinforces the value of disciplined, forward-looking investment thinking, anchoring capital in enduring trends rather than short-term reactions, and positioning wealth to navigate uncertainty with resilience and clarity. 

“Investing is a complex and evolving discipline, shaped by a wide range of interwoven factors. To truly serve clients over time, it's essential to look beyond short-term fluctuations and build advice on a foundation of clarity and long-term vision.

At Julius Baer, the Advisory team places strong emphasis on strategic consistency. Our Secular Outlook serves as a cornerstone-a long-term compass that helps anchor client conversations through periods of market uncertainty. While financial markets are inevitably influenced by shifting cycles and sentiment, having an enduring reference point enables continuity and confidence in decision-making.

That said, we also recognize the value of staying engaged with evolving conditions. By identifying tactical opportunities within broader structural trends, we foster meaningful dialogue with clients, helping them understand not only where markets may be headed, but why. Ultimately, much of what makes advisory effective lies in translating intricate dynamics into clear, actionable insight-making the complex feel accessible without losing depth.”

Philippe Honegger, Head of Advisory, Bank Julius Baer Monaco.

By Yves Bonzon

Contributor

Yves Bonzon is Group Chief Investment Officer at Julius Baer and a member of its Global Wealth Management Committee.