LupoToro: Q1 2026 Global Outlook

LupoToro’s Q1 2026 outlook frames a globally diversified, actively managed playbook across equities, fixed income, private markets, AI, defense, property, commodities, and bitcoin/crypto - positioned for dispersion, easing-cycle transitions, and selective opportunity amid late-cycle valuation risk.

The global investment landscape entering 2026 is marked by complexity and change. Central banks are shifting course, trade dynamics are being redrawn by tariffs and geopolitics, and isolated credit events have injected caution into markets. In this environment, LupoToro Group emphasizes an active, disciplined approach. We have identified key catalysts on the horizon – including impending monetary easing cycles, the ongoing AI revolution, and a revival of corporate deal-making – that could drive opportunities. Our strategy is to remain agile and strategically position portfolios to navigate volatility and seek out returns in 2026.

Contents:

• Active Investing Amid Complexity

• Public Markets: Equities and Fixed Income

• Private Markets and Alternative Assets

• Portfolio Construction Strategies

• Thematic and Megatrend Insights

• United States: Growth Fueled by AI

• Euro Area: Soft Landing, Slow Investment

• United Kingdom: Disinflation and Easing

• China: Tech-Driven Ambitions vs. Headwinds

• Japan: Normalization and Resilience

• Defense Sector Outlook

• AI and Technology Sector

• Property Markets

• Commodities Outlook

• Bitcoin and Crypto Markets

Active Investing Amid Complexity

When traditional assets all appear expensive, a passive “buy everything” strategy may fall short. Instead, we advocate selective and tactical allocation across equities and bonds. Rather than simply mirroring benchmark indices, investors should tilt their portfolios in anticipation of changing conditions. With potential shifts in interest rates and uneven economic growth, there will likely be winners and losers; security selection and timing will be critical. In short, 2026 calls for skillful active management – overweighting sectors or regions with better prospects (such as those benefiting from AI-driven productivity or policy support) and underweighting areas facing headwinds (like overly indebted companies or trade-sensitive sectors). This nuanced approach aims to deliver value when broad markets might be range-bound or volatile.

Public Markets: Equities and Fixed Income

Equities: We expect greater dispersion in equity performance this year – not all markets or sectors will move in lockstep. This favors a globally diversified equity strategy with active management. LupoToro’s outlook is constructive on global equities, but we prefer a balanced approach blending fundamental analysis (to identify quality companies with solid earnings and cash flows) and quantitative strategies (to capture factor trends and market inefficiencies). U.S. stock indices hit record highs in late 2025, fueled by big technology firms, and they could retain momentum into 2026 if earnings growth – boosted by AI and innovation – continues. However, high valuations mean investors should be prepared for rotations. We anticipate that “tomorrow’s winners may look very different” – leadership within the tech sector itself could broaden or shift to new entrants. Outside of tech, select opportunities in industries like industrials (benefiting from infrastructure spending) or energy (with companies focusing on efficiency and independence) may reward active stock pickers. Overall, equity investors in 2026 need to be selective and global, as regional and sector fundamentals diverge more than in recent years.

Fixed Income: After the bond market turbulence of the past couple of years, fixed income enters 2026 offering more attractive yields and income potential than it has in over a decade. We are focusing on diversified duration exposuresand strategic yield-curve positioning. This means balancing short-term bonds (to capture decent yields with lower volatility) against longer-term bonds (to potentially benefit if central banks ease policy or if long-run inflation expectations fall). Active security selection is also key – with higher interest rates, credit quality matters more. We see compelling income opportunities in areas like securitized credit (asset-backed securities and mortgage-backed securities where yields are high and fundamentals are solid), high-yield corporate bonds (particularly where companies have manageable debt and resilient earnings), and emerging market debt (select EM countries with improving economic trends or commodity windfalls offer attractive real yields). Caution is warranted on the most debt-laden issuers, but overall we believe 2026 will reward fixed income investors who are tactical: prepared to adjust duration as the rate cycle evolves and to rotate between credit sectors as relative spreads change.

Private Markets and Alternative Assets

In private markets, 2026 presents a nuanced picture. Private equity valuations remain elevated in many cases, raising the question of whether return expectations can be met. We are scrutinizing portfolios for any potential pressure points – for instance, highly leveraged buyouts may face challenges if financing costs stay high or growth underwhelms. On the other hand, dry powder (undeployed capital) is plentiful, which could drive a resurgence of deal-making if sellers become more realistic on pricing. Private credit has grown rapidly as an asset class, and we are watching for stress in lower-quality loans; some mid-sized businesses could encounter difficulties refinancing debt. Active management in private credit – stringent due diligence and covenant protections – will be crucial to avoid defaults and to seize opportunities to provide financing where banks have pulled back.

In real estate, the big question is whether the sector is ready for a rebound after a challenging period. Rising interest rates in 2024–2025 cooled property markets worldwide. As we enter 2026, we see signs of stabilization. Certain real estate segments with strong fundamentals (for example, residential housing in supply-constrained markets) could start to recover if mortgage rates gradually ease. Indeed, some forecasts suggest a modest uptick in housing activity by late 2026 as financing becomes a bit more affordable and pent-up demand re-emerges. However, any rebound will likely be uneven: commercial real estate – especially office properties in major cities – may continue to struggle with higher vacancy and shifts toward hybrid work, whereas logistics and warehousing properties remain in demand due to the sustained growth of e-commerce. We maintain a cautious but optimistic stance on high-quality real estate assets, especially those that have undergone price corrections and now offer reasonable yields.

Beyond traditional private assets, we are also looking at infrastructure investments, particularly beyond just the headline-grabbing AI data centers. Governments across the globe are prioritizing infrastructure projects – from clean energy and power grids to transportation and digital connectivity. These areas present attractive opportunities: for example, renewable energy infrastructure is set to expand as nations seek energy independence and grid resiliency, and defense-related infrastructure spending is rising in response to geopolitical tensions. Such investments often come with stable cash flows backed by long-term contracts or government support. In short, thoughtful capital deployment in select private assets – with a keen eye on valuations and risk – can enhance portfolio returns and diversification in 2026.

Portfolio Construction Strategies

In light of evolving markets, we see 2026 as an opportunity for investors to recalibrate their portfolios. One trend is the rise of active ETFs, which combine the flexibility and low cost of exchange-traded funds with active management. These vehicles allow us to implement tactical views swiftly while maintaining transparency and tax efficiency. We also highlight the use of enhanced passive strategies – for instance, indices tilted toward specific factors (value, quality, momentum, etc.) or customized to ESG criteria – to improve the core of portfolios beyond plain market-cap weighting.

Another consideration is tail-risk hedging. Given persistent uncertainties (from potential policy missteps to geopolitical surprises), adding protection against extreme downside events can be prudent. This might involve options strategies or allocations to assets like long-term Treasuries or gold that tend to perform well in risk-off scenarios. The cost of hedging needs to be balanced against returns, but in a year where markets could be choppy, some insurance in the portfolio is worth evaluating.

Lastly, we encourage broadening access to alternative investments for diversification. Innovations in financial products and regulatory changes are making it easier to include alternatives such as private equity, private credit, real assets, or hedge fund strategies in portfolios at smaller ticket sizes. For 2026, incorporating a modest sleeve of alternatives – appropriate to an investor’s risk profile – can add uncorrelated return streams and potentially boost overall portfolio resilience. The bottom line: a modern portfolio in 2026 may look more eclectic than the classic 60/40 mix, blending traditional assets with new tools and alternative exposures, all managed actively to respond to the fast-changing market environment.

Thematic and Megatrend Insights

Major structural themes are reshaping investment opportunities, and 2026 will likely accelerate some of these megatrends. A top theme is energy independence and resource security. Geopolitical conflicts and trade realignments have taught nations the importance of securing supply lines for energy and critical materials. We anticipate increased investment in domestic energy production (both renewable and conventional) and in supply-chain localization for key resources. For investors, this could mean opportunities in industries like renewable energy technology, energy storage, critical minerals mining and processing, and even traditional energy companies pivoting to enhance efficiency and reliability. Resource efficiency – doing more with less – is another related priority, driving innovation in areas like recycling, energy-efficient construction, and precision agriculture.

These needs are being amplified by advances in AI. AI is not only a tech sector story; it’s a general-purpose technology affecting all sectors. For example, AI can optimize energy grids, improve manufacturing efficiency, and accelerate R&D in healthcare. We expect AI spending to remain a powerful force supporting economic growth (with current investment trends reminiscent of past tech booms like the late-1990s internet buildout). Importantly, sustainable investing is maturing within these themes. There is a greater focus on tangible results and performance outcomes. Companies and funds with environmental or social mandates are now being judged not just on their mission statements but on how well they deliver financial returns alongside impact. In 2026, we foresee sustainability and performance going hand-in-hand more than ever – investments in clean energy, climate resilience, or social infrastructure will need to demonstrate profitability and scalability to attract major capital.

The evolving thematic landscape – from the green transition to digital transformation – continues to create new avenues for growth. LupoToro is actively monitoring these megatrends to identify where capital can be deployed for both strategic impact and compelling returns.

After proving resilient through 2025’s headwinds (including tariff frictions and demographic drags), the world economy is set for moderate growth in 2026, roughly in line with its long-term average. We expect global real GDP growth of about 3%, but under the surface, regional performance will diverge significantly. The United States is poised to outpace other developed markets, with fiscal stimulus and an AI-driven private investment boom contributing to a stronger expansion. China’s growth is also expected to pick up relative to its 2025 pace, aided by technology investments and policy support, though it remains below the blistering rates of the past. In contrast, Europe and Japan are likely to experience more subdued growth near the 1% level, facing structural constraints and lesser boosts from technology.

Inflation, while off the peaks of recent years, remains a focal point for policymakers. Most major economies begin 2026 with inflation above central bank targets, though the trajectory is downward. As inflation eases, central banks are entering a phase of policy recalibration. The European Central Bank, having paused rate hikes in 2025, is expected to hold steady or even consider modest cuts if price pressures undershoot, given Europe’s sluggish demand. The Bank of England, contending with faster disinflation in the UK, has signaled a tilt toward easing. Meanwhile, the U.S. Federal Reserve faces a delicate balance: with U.S. growth relatively robust and inflation still slightly above the 2% goal, the Fed is likely to remain cautious – we anticipate at most one rate cut in the first half of 2026, keeping policy around a neutral stance. On the other end of the spectrum, the Bank of Japan is gradually normalizing policy, moving interest rates out of negative territory for the first time in years as Japan’s economy shows signs of sustained improvement. In sum, monetary policies in 2026 will be less synchronized than before, making local knowledge and active interest-rate management essential for investors.

United States: Growth Fueled by AI

The U.S. economy enters 2026 with an upbeat outlook. We project U.S. real GDP growth around 2.2–2.5% for the year, which is a notable acceleration from 2025 and above many consensus estimates. A key driver behind this optimism is the surge in AI-related investment. American businesses are in the midst of a significant capital spending cycle, pouring money into software, advanced computing hardware, and automation. We estimate that spending on AI and digital transformation will contribute on the order of $400–$500 billion to nonresidential investment this year, supporting an overall increase of roughly +7% in capital expenditures. This wave of investment is reminiscent of past innovation booms (such as the railway expansion of the 1800s or the late-1990s tech bubble), but unlike those eras, the current investment is broad-based across sectors rather than confined to a few industries. For example, not only are tech giants building data centers and AI models, but manufacturers, retailers, and healthcare firms are also investing in AI to boost productivity. This breadth suggests the investment cycle still has room to run.

Consumer spending in the U.S., which accounts for the largest share of GDP, remains solid. Despite high interest rates, consumer confidence has been supported by a strong labor market and rising wages. It’s worth noting, however, that U.S. consumption is a tale of two realities: the wealthiest 20% of households drive roughly 40% of total spending, and this affluent segment remains in good financial shape. Lower-income households have begun to feel the pinch of inflation and higher borrowing costs, but since they compose a smaller fraction of overall consumption, the impact on aggregate spending is limited. One risk to watch is the effect of ongoing trade tariffs – consumer prices on some goods may rise if import costs are passed through, but so far the inflationary impact of tariffs has been modest, partly due to importers finding alternative suppliers or front-loading purchases ahead of tariff hikes.

On the policy front, fiscal spending is providing a tailwind. The government’s “One Big Beautiful Bill Act” (enacted in mid-2025) is ramping up outlays on infrastructure, green energy, and social programs. This fiscal thrust is one reason the second half of 2026 is expected to see stronger growth than the first half. There are concerns about the long-term sustainability of U.S. debt – indeed, the rise in 30-year Treasury yields in late 2025 was partly attributed to markets demanding a higher premium for potential future fiscal strain. However, we don’t foresee a fiscal crisis in 2026: the U.S. debt-to-GDP ratio, while high, doesn’t have a magic tipping point, and as Japan’s example shows (with debt over 200% of GDP for years), what matters more are the overall conditions like interest rate levels, investor base, and growth prospects. In the near term, a solid growth outlook and only gradually declining inflation mean the Fed will be cautious. We expect the Fed Funds rate to end 2026 near 3.5%, roughly the estimated “neutral” level, after perhaps one or two small rate cuts once they are confident inflation is durably headed to 2%. This relatively higher-for-longer stance is a bit more hawkish than what bond markets had priced, which could lead to some upward pressure on shorter-term yields.

For U.S. financial markets, our view is moderately positive but selective. Corporate earnings proved resilient in 2025 – especially in technology, where AI investments boosted productivity – and we expect earnings growth to continue in 2026 at a healthy single-digit pace. This should support U.S. equities, though valuations (particularly for mega-cap tech stocks) are elevated. We believe the tech sector can maintain momentum due to strong profit and investment trends, but leadership might broaden to other industries benefiting from the investment boom (such as semiconductors, cloud services, industrial automation, and even energy companies supplying power to data centers). In fixed income, U.S. Treasuries might trade in a range as growth optimism and fiscal issuance put upward pressure on yields, while cooling inflation and global demand for safe assets hold yields in check. Credit markets in the U.S. are generally healthy; we expect default rates to stay relatively low given the economic growth, though pockets of stress could emerge if borrowing costs remain high for weaker issuers. All in all, America in 2026 looks set to be an engine of growth, fueled by innovation and supported by prudent policy, making it a cornerstone for global investors (albeit one where active selection is needed due to high asset prices).

Euro Area: Soft Landing, Slow Investment

The euro area surprised pessimists by achieving a soft landing through 2025, and we anticipate modest growth of about 1.2% in 2026 – roughly in line with the region’s potential growth rate. The inflation scare that saw price growth spike into double digits in 2022 has subsided; eurozone annual inflation is on track to end 2025 around 2%, and we expect it to hover close to the European Central Bank’s target (around 2% or slightly lower) throughout 2026. This benign inflation outlook, combined with subpar growth, suggests the ECB will likely keep its policy rate at the “neutral” level of 2% for much of the year. In fact, if anything, the balance of risks may tilt toward a rate cut by late 2026, especially if inflation falls below target due to one-off factors (such as cheaper energy or a stronger euro).

Two opposing forces will shape Europe’s growth in 2026. First is a drag from trade: the effective tariff rate on European exports to the U.S. jumped in the past year as U.S. trade policy became more protectionist. We estimate that these higher U.S. tariffs could shave around 0.3 percentage points off euro area GDP growth in 2026 by making European goods less competitive in the American market. Export-focused sectors in countries like Germany and France are feeling this pressure. On the other hand, Europe is getting a fiscal boost at home. Germany, for instance, has launched a substantial infrastructure spending package (after years of restrained investment), and many European Union nations are increasing defense expenditures in response to ongoing geopolitical tensions. This fiscal loosening is expected to contribute a few tenths of a percent to eurozone growth (perhaps +0.4 ppt altogether), partially offsetting the trade headwinds. Net-net, the euro area should manage to grow just over 1%, avoiding recession but also not booming.

One notable feature of Europe’s outlook is the relative lack of an AI-driven investment surge akin to that in the U.S. European companies and governments have generally lagged in both AI innovation and the buildout of related infrastructure. Capital expenditure plans announced by Europe’s tech sector for the next two years total only a fraction (roughly $250–300 billion) of what their American counterparts are investing (well over $2 trillion in the U.S. across 2025-2027 in new tech and capacity). As a result, private investment growth in Europe is likely to remain tepid – we forecast only about +2% real growth in euro area private investment for 2026, versus an expected +7% in the U.S. The implication is that Europe may miss out on some of the productivity gains and excitement that AI is injecting into the U.S. economy, at least in the near term.

Within the euro area, we are particularly attentive to France, which faces fiscal and political uncertainties. France deferred a planned pension reform to 2027, and in the meantime its budget deficits are running high (on the order of 5–6% of GDP). Without clear near-term consolidation plans, there is a risk that France’s government bond yields see additional risk premia, and that could slightly dampen its growth in 2026 through tighter financial conditions. However, overall European debt levels are more contained than a decade ago, and the ECB’s steady policy stance provides some backstop.

For investors, European equities and bonds may offer selective value. European stock indexes trade at valuation discounts to the U.S., reflecting Europe’s slower growth and structural challenges. There may be opportunities in sectors like industrials or luxury goods if China’s recovery boosts demand, or in financials if higher rates support bank profits – but again, active selection is key. In European fixed income, sovereign bonds could outperform if growth stays weak (especially peripherals like Italy, provided the EU’s fiscal rules remain flexible), and corporate credit in certain industries might benefit from fiscal stimulus (e.g., construction firms getting infrastructure contracts). We remain neutral to slightly positive on European assets, recognizing the region’s stability but also its constraints.

United Kingdom: Disinflation and Easing

The UK economy has been growing at a muted pace, roughly 1% in 2025, and we anticipate a similar modest growth rate of around 1.0–1.2% in 2026. The past year saw the UK demonstrate surprising resilience despite a tough global backdrop. Consumer spending, government expenditure, and business investment all contributed to keeping the economy out of recession, even as high inflation eroded purchasing power and the labor market showed signs of cooling. Going into 2026, one positive development is a sharp improvement on the inflation front. UK inflation, which was running above 10% at its 2022 peak, decelerated to about 3.8% by end-2025. We forecast inflation will continue to fall, reaching roughly 2.2% by end-2026, very close to the Bank of England’s target. This disinflation is partly mechanical – hefty increases in regulated prices (like energy and utility bills) from a year ago are rolling out of the year-on-year calculations, and the government’s removal of green levies on household energy bills in 2025 is directly reducing consumer costs. Additionally, some UK-specific price surges (for example, in rents, holiday travel, and food) are expected to unwind or at least stop accelerating. As these factors normalize, the overall price environment should become much more stable.

A more benign inflation outlook is welcome news for the Bank of England, which raised interest rates aggressively through 2024 to combat price pressures. With price stability in sight and the economy only trudging along, the BoE is likely to pivot to easing monetary policy in 2026. We project the BoE’s policy rate (Bank Rate) could be cut from its late-2025 level of 4.0% down to around 3.25% by the end of 2026. This path assumes the BoE will move cautiously, in quarter-point steps, monitoring whether inflation expectations truly stay anchored around 2%. Importantly, easing is made possible because wage growth and inflation expectations in Britain are set to cool alongside the headline inflation drop – if this plays out, the BoE will feel vindicated that it raised rates sufficiently and can now give the economy some breathing room.

Fiscally, the UK’s situation is a bit tight. The Chancellor’s Autumn 2025 budget was not overly expansive; it included some near-term increase in government spending (providing a mild boost in 2026), but also laid out future tax rises from 2028 onward to improve public finances. Therefore, there is not a significant fiscal impulse to growth in 2026, but neither is there a major consolidation shock. The neutrality of fiscal policy means the private sector will have to drive whatever growth the UK can muster. Here we see consumers and housing playing a potential role: with inflation falling and wage growth still positive, real incomes should start rising again, helping consumer spending on essentials and small luxuries. The housing market in the UK has been under pressure from high mortgage rates; however, with the BoE likely cutting rates, mortgage rates should peak and possibly dip by late 2026. That could stabilize housing prices and even lead to a modest uptick in transactions after a very slow 2025. We don’t expect a housing boom by any means, but the worst may be over for UK real estate if financing costs gradually improve.

For UK assets, the backdrop of falling inflation and rate cuts could be constructive. UK government bonds (gilts) offer relatively high yields entering the year, and if inflation indeed moderates as we expect, gilt yields could decline, generating capital gains for bondholders. The pound sterling may soften slightly if interest rate differentials versus the U.S. narrow, but improved UK economic stability could also attract investment, so we see a balanced outlook for the currency. In equities, the UK’s FTSE index has a heavy weight in sectors like energy, materials, and financials. Commodity-related firms could face headwinds if global oil prices remain soft (more on that in the Commodities section), but banks might perform better in a scenario of steady growth and slightly lower funding costs. With UK stocks still trading at a valuation discount to global peers, there is room for upside if global investors gain confidence that the UK has put stagflation scares in the rear-view mirror.

China: Tech-Driven Ambitions vs. Headwinds

China’s economic narrative for 2026 is one of ambitious long-term goals tempered by near-term constraints. The government’s strategic objective is to roughly double real GDP between 2020 and 2035, which would require an average growth rate near 4.7% per year. While this goal underscores China’s commitment to development, our analysis suggests actual growth is trending lower. We foresee Chinese real GDP expanding by about 4.5% in 2026, which is an improvement from 2025 (and above some international forecasts) but still below the pace needed for the 2035 aspiration.

On the positive side, productivity and technology are key focuses for China. The nation is heavily investing in AI, advanced manufacturing, and upgrading its workforce’s skills. These efforts are yielding some gains: automation and AI are starting to mitigate the impact of a declining labor force, and industries like renewable energy, electric vehicles, and high-end electronics are growing quickly. China’s push in education and tech R&D is expanding the talent pool in engineering and sciences, which bodes well for innovation. These structural improvements mean China’s underlying potential growth might be a bit higher over the next decade than previously thought, despite demographic headwinds. We estimate trend growth for 2026–2030 could average around 4.2% annually (down from ~7.5% in the last decade, but somewhat higher than pessimists fear).

However, significant headwinds are present. The most immediate challenge is the fallout from China’s property sector downturn. Years of overbuilding have left many developers in financial trouble and consumer confidence in real estate shaken. Property investment has been contracting, and we don’t expect a sudden turnaround in 2026. The housing market correction reduces wealth for homeowners and constrains local government revenues (many of which depend on land sales), thereby curbing infrastructure spending as well. This is a drag on domestic demand that likely outweighs any positive “wealth effect” from the stock market (which did rally in late 2025). Another challenge is external: Chinese exports enjoyed a temporary boost in late 2025 due to exporters rushing shipments before new tariffs hit (so-called frontloading), but that means there could be a payback in early 2026 with weaker export volumes. Additionally, trade and tech tensions with the U.S. and its allies persist – restrictions on technology transfer, export controls on chips, and wary foreign investors all limit China’s upside.

Beijing is responding with policy support, but in a targeted and cautious manner. We expect continued monetary easing by the People’s Bank of China – though room is limited because too much easing could risk capital outflows and pressure on the yuan. The currency, the renminbi (RMB), is likely to remain broadly stable against a basket of currencies, as authorities manage it tightly to avoid volatility. On fiscal policy, there will likely be incentives for high-tech manufacturing, electric vehicles, and consumer spending (such as subsidies or tax breaks for green appliances or cars), as well as support for housing demand (e.g. relaxing purchase restrictions in some cities). These measures should prevent growth from slipping below 4%, but they are not large-scale stimulus. There is also a keen focus on avoiding deflation: China experienced episodes of price declines in 2025 due to excess capacity and weak consumer sentiment. In 2026, if signs of deflation persist (e.g., falling producer prices and very low consumer inflation), we anticipate more aggressive steps like interest rate cuts or even property market rescue packages to revive confidence.

In terms of markets, China presents a mixed picture. Chinese equity valuations are relatively low after years of underperformance, so there is room for upside if growth surprises positively or if regulators introduce market-friendly reforms. Global investors will be watching for any progress in U.S.-China trade negotiations or a cooling of tech rivalry, which could improve sentiment. However, without clearer signs of that or a definitive bottom in the property cycle, many will remain cautious. The long-term megatrend of Chinese consumption and middle-class expansion is still intact – areas like travel, healthcare, and premium goods are likely to see strong demand – but 2026 might be more about laying groundwork (productivity, reforms) than immediate payoffs. LupoToro maintains a strategic allocation to China but with carefully chosen exposure, favoring companies and sectors aligned with policy priorities (technology self-sufficiency, green development, domestic consumption) and with solid balance sheets to weather any turbulence.

Japan: Normalization and Resilience

Japan’s economy has entered a phase that would have seemed almost fanciful a few years ago – a period of steady, modest growth with gradually rising prices. We anticipate Japan’s real GDP will grow around 1% in 2026, continuing the moderate expansion seen recently. What’s notable is that this growth is accompanied by the most sustained domestic inflation Japan has experienced in decades (albeit still low by international standards). After a long struggle with deflation, Japan’s core inflation (excluding fresh food and energy) has been consistently above 2% in 2025, and we expect underlying inflationary pressure to remain intact through 2026. Several forces are driving this shift: a persistently tight labor market (unemployment in Japan is extremely low, and a shrinking working-age population means labor shortages are the norm) is finally pushing wages higher. Annual wage negotiations in early 2025 delivered significant pay hikes, and we anticipate another year of solid wage gains in 2026, supported further by permanent income tax cuts that have improved household disposable income. These fatter paychecks are bolstering consumer confidence and spending. Indeed, private consumption has been a bright spot, continuing to recover from the pandemic era and now fueled by both wage growth and a sense that prices will be higher in the future (which encourages buying sooner rather than later – a psychological shift after years when falling prices were expected).

Business investment in Japan is also robust. Japanese corporations, flush with cash from historically high profit levels, are finally deploying capital. There is a particular emphasis on labor-saving investments: facing chronic labor shortages, firms are investing in automation, robotics, digitalization, and software to maintain output with fewer workers. Moreover, clarity on trade policy – such as the resolution of certain U.S.-Japan trade uncertainties with a tariff agreement in late 2025 – has reduced external risk, enabling companies to plan and invest with more confidence. Capital expenditure is rising not only in manufacturing (for automation and capacity expansion) but also in services (for digital systems and AI-driven analytics to improve efficiency). Exports, meanwhile, are providing a mild lift; demand from the U.S. (aided by the U.S. growth spurt) and a relatively weak yen (compared to a few years ago) make Japanese goods and tourism more competitive abroad. The U.S.-led tariff hikes that worried Japan turned out to have limited direct impact, thanks in part to Japan’s strong trade relations and the specifics of the agreements reached.

The Bank of Japan (BoJ) has begun a gradual policy normalization. After years of ultra-loose monetary policy (including negative interest rates and yield-curve control), the BoJ has shifted to a stance of careful tightening. It already ended negative rates in 2025 and allowed 10-year government bond yields to rise modestly. In 2026, we expect the BoJ to proceed with a couple of small rate hikes, possibly bringing its short-term policy rate up to 1.0% by end-2026. This is still very low, but the direction is significant – Japan is moving away from emergency monetary settings. The BoJ is treading carefully, monitoring inflation dynamics and global factors like foreign exchange volatility. We think the BoJ will communicate its moves well in advance to avoid shocking markets. Importantly, even as the BoJ steps back from massive bond purchases, Japan’s government debt is likely to remain stable. The rise in interest expense from slightly higher rates is manageable because nominal GDP is growing (with both real growth and inflation contributing). Japan’s debt-to-GDP ratio has actually edged down in recent years, and households and corporations hold substantial financial assets, providing a buffer. Additionally, because much of Japan’s government debt is held domestically (by institutions like the postal savings system, pension funds, etc.), the country is less vulnerable to fickle foreign capital. Overall, Japan’s story in 2026 is one of a long-awaited normalization: moderate growth, gentle inflation, and a central bank finally inching toward a conventional policy stance. This environment is positive for Japanese equities – which tend to do well with a mix of growth and inflation – and it may also strengthen the yen somewhat as interest rate differentials with the U.S. narrow (though any yen appreciation might be limited by ongoing capital outflows from Japanese savers seeking higher returns abroad). We are optimistic on Japan’s market prospects and see it as an interesting component of a global portfolio, especially if global investors continue to rediscover Japanese stocks after decades of underperformance.

Defense Sector Outlook

The Aerospace and Defense (A&D) industry stands at a pivotal crossroads as we head into 2026. Several powerful currents – some old, some new – are converging to reshape this sector globally. On one side, enduring factors such as the push for digital transformation, lingering supply chain fragility, workforce skill gaps, and heightened geopolitical tensions continue to influence A&D. On the other side, new catalysts have emerged: the rapid evolution of AI and “agentic” AI(advanced autonomous decision-making systems), the development of next-generation platforms (like reusable rockets, hypersonic missiles, and unmanned systems), and an urgency among militaries to deploy cutting-edge technology faster than ever.

In our analysis, we highlight a few key trends and opportunities within A&D for 2026:

• AI and Autonomy: Artificial intelligence is steadily permeating defense and aerospace operations, though unevenly. Most organizations are still in early experimental phases, but the potential is enormous. AI-enabled decision support is shortening the OODA loop (observe–orient–decide–act) in military scenarios, helping commanders make faster, smarter choices in complex environments. For instance, the U.S. Air Force’s recent trials in human-machine teaming demonstrated AI’s ability to suggest tactics in real-time. In space and surveillance, AI is being used to automate satellite maneuvers and analyze imagery. On the factory floor, aerospace manufacturers are testing AI for quality control – e.g. using computer vision to detect defects in components. By 2026, we expect many of these pilot programs to scale up. The most visible deployments will likely be in support functions – things like predictive maintenance, logistics planning, and procurement – where AI can process vast data and recommend optimizations. Investment in A&D-related AI is skyrocketing; industry forecasts project that U.S. defense and aerospace spending on AI (including generative AI) could reach $5.8 billion by 2029, roughly 3.5× the level of 2025. Companies that harness AI effectively will gain a competitive edge in productivity and innovation.

• Aftermarket and MRO Services: Maintenance, repair, and overhaul (MRO) of aircraft and defense systems is traditionally a steady, lucrative business – and it’s becoming even more crucial. Commercial air travel continued to recover in 2025, with airlines facing aircraft delivery delays from manufacturers. As a result, carriers are utilizing existing fleets more intensively and for longer years, which means more wear-and-tear and a greater need for upkeep. Major aerospace companies report full MRO pipelines, especially for aircraft engines (which typically account for the largest share of MRO spending). Global commercial aftermarket demand is projected to grow around 3% annually through the decade, and engines could make up over half of that market by 2030. We see aftermarket service providers expanding their offerings to end-to-end solutions – not just fixing parts, but also managing inventory, supplying spares, providing engineering upgrades, and even training support. In defense, sustainment of equipment (from fighter jets to naval ships) is getting increased budget attention as militaries grapple with aging platforms and high operational tempos. Technological integration is key here too: predictive maintenance uses sensors and AI analytics to anticipate failures and schedule repairs proactively, minimizing downtime. Firms embracing data-driven maintenance models (for example, AI systems that analyze engine performance data to predict when an overhaul is needed) will likely outperform peers in efficiency and reliability. We expect the aftermarket segment in 2026 to remain a stable cash generator and a growth opportunity, with some companies even considering acquisitions or partnerships to broaden their maintenance network globally (including in fast-growing markets in Asia and the Middle East).

• Supply Chain Resilience: If there is one lesson the A&D sector learned recently, it’s that a fragile supply chain can cripple production and delivery schedules. In 2025, many aerospace manufacturers still struggled with shortages of critical parts, from simple fasteners to advanced microelectronics, often due to sole-source dependencies or geopolitical restrictions. Going into 2026, demand for aircraft (both commercial and defense) and for defense equipment (like missiles and drones) is only increasing. This strain on suppliers – many of whom are smaller firms with limited capacity – is a major risk. Companies are thus investing in making supply chains both more efficient and more resilient. We see a dual strategy: some are consolidating supply chains, bringing more production in-house or closer to home to ensure control (for example, a prime contractor might acquire a smaller component supplier to guarantee its output). Others are diversifying, seeking multiple suppliers across different regions to reduce the risk of any single point of failure (for instance, qualifying a second source in Asia or Europe for a part previously sourced only from the U.S.). Additionally, firms are increasing inventory buffers for critical items and signing long-term contracts to secure raw materials at stable prices. Digital supply chain management tools are being adopted to improve visibility – so companies can quickly spot delays or quality issues deep in their supplier network and respond. Despite these efforts, we caution that meaningful improvements take time; many sub-tier suppliers are constrained by labor shortages and capital, making it hard to ramp up quickly. Therefore, we expect supply chain challenges to persist through 2026 and beyond, but companies that proactively invest in solutions (whether through technology or strategic partnerships) will mitigate the worst impacts and be positioned to deliver on the rising demand.

• Contracting and Procurement Evolution: The way governments buy defense technology is undergoing a quiet revolution. Traditional procurement cycles, which often span many years from request to fielding, are being upended by the urgency of technological change. In the U.S., reforms and initiatives encourage faster, more agile contracting methods – like Other Transaction Authority (OTA) agreements – which allow prototyping and experimentation with non-traditional defense companies outside the usual Federal Acquisition Regulations. There’s also a push for “commercial solutions first,” meaning if a commercial item or software meets a military need, the Pentagon would rather buy or adapt that than initiate a new bespoke development. The result is an opening for startups and tech firms to compete alongside or in partnership with the big primes (established large defense contractors). We observe that big defense companies are not standing still: many are setting up venture arms, partnering with Silicon Valley firms, or even preemptively developing tech (like autonomous drone prototypes or advanced software) with their own R&D funds to demonstrate capabilities to the military. Intellectual property rights and data rights are a hot topic in these collaborations – the DoD is seeking assurances that if it funds development, it can access the technical data later, while companies want to protect their secret sauce for commercial use. In 2026, expect to see faster contract awards in priority areas such as AI-enabled defense platforms, space systems, and cyber capabilities. New entrants will still face hurdles (the defense sector’s requirements for security clearances, long testing and evaluation cycles, etc., cannot be eliminated entirely), but the barriers are lower than before. This trend should accelerate innovation and potentially shorten the time it takes for new technology to reach the field. From an investment perspective, the defense sector could see a shake-up in its competitive landscape – smaller tech-savvy firms might capture niche opportunities, and M&A could increase as incumbents acquire innovators to keep up.

• Workforce and Talent Transformation: Human capital is an often underappreciated aspect of the defense industry, and it’s becoming a critical differentiator. As A&D companies adopt digital tools and AI, they need a workforce skilled in data science, machine learning, and software engineering in addition to traditional engineering disciplines. The competition for such talent is intense – not only within the industry but also against big tech companies and the broader market. We are seeing a shift in hiring and training practices: companies are building partnerships with universities and technical institutes to create talent pipelines (e.g., sponsoring specialized programs in aerospace AI or autonomous systems). Moreover, within organizations, there is an effort to increase AI fluency across all levels. Rather than only hiring specialist data scientists, firms are training their existing engineers, analysts, and managers to use AI tools relevant to their domain (for example, maintenance technicians trained to use AI-driven diagnostics, or project managers learning to leverage predictive analytics for scheduling). A Deloitte study recently noted that the fastest-growing skills in A&D job postings include data analysis and machine learning, and we echo that observation – our own industry surveys show a rise from roughly 9% of job listings requiring data analytics skills a year ago to nearly 14% by 2028 forecasted. The organizational culture is also adapting: senior leadership overwhelmingly supports digital transformation, but middle management often needs convincing and retraining to overcome a “this is how we’ve always done it” mindset. We anticipate companies that succeed in blending their deep domain experience with new technological skill sets will not only boost productivity but also be more innovative and agile in product development. In essence, the A&D workforce of the future will be a hybrid of traditional engineering excellence and modern digital savvy. For 2026, this means increased budgets for training, internal centers of excellence for AI, and creative retention strategies to keep critical talent on board (like offering continuous learning opportunities and clear career pathways that integrate AI projects).

Bottom line for A&D in 2026: The industry is growing, but the focus is shifting from sheer expansion to optimization and innovation. Commercial aerospace firms will aim to maximize the uptime and performance of the aircraft already flying, as new jet deliveries lag demand. Defense organizations will pour money into new technologies like autonomous drones and hypersonic missiles, yet success will depend equally on their ability to sustain older equipment and ensure it’s mission-capable when needed. Digital transformation – incorporating data analytics, AI, and connectivity – is becoming non-negotiable for managing these complexities at scale. We expect those A&D companies that invest wisely in robust digital infrastructure (for supply chain, maintenance, and design), cultivate the right talent, and form strategic partnerships (whether with software firms, startups, or international allies) will be best placed to capture the opportunities of this dynamic era. For investors, the defense sector in 2026 offers a compelling mix of stable demand (government budgets are rising globally) and transformative growth potential (as new tech moves from concept to reality). It’s a space where fundamental analysis (understanding contract backlogs and cost structures) and thematic insight (spotting who leads in AI, space, or resilience solutions) must go hand in hand.

AI and Technology Sector

The technology sector, and in particular companies leading in artificial intelligence, has been a star performer in recent years. 2025 saw remarkable gains for many AI-centric stocks as enthusiasm ran high. As we enter 2026, we carry a nuanced view: the economic impact of AI is accelerating, but the stock market’s exuberance around AI may face tests. AI’s contribution to productivity across industries – from finance to healthcare to manufacturing – is becoming tangible. This should support broad economic growth and corporate earnings over the medium term. In fact, we believe AI and automation will be one of the dominant drivers of higher trend growth in economies like the U.S. for the rest of the decade. However, the market may have raced ahead of itself in pricing in the AI revolution. At the end of 2025, valuations of the leading AI and cloud companies were extremely rich by historical metrics, reflecting optimism for many years of rapid growth and market dominance.

One key insight from LupoToro’s analysis is that while today’s AI leaders (the mega-cap technology firms who provide AI platforms and infrastructure) are capturing the headlines and investment flows, the competitive landscape in tech is likely to evolve. New winners can emerge, possibly from areas like open-source AI software, specialized chipmakers, or enterprise software firms that successfully embed AI into business processes. Investors should be careful not to simply chase the biggest names blindly, but rather evaluate how each company is positioned for the next phase of AI development. For example, companies that enable AI adoption (think of firms providing the picks and shovels – semiconductors, cloud services, cybersecurity for AI systems, etc.) might see sustained demand. Additionally, AI ethics and regulation could become a larger theme in 2026, potentially impacting business models. Firms that have diversified AI revenue streams and are proactive in addressing regulatory or societal concerns (like data privacy and AI safety) might be better long-term bets.

From a market performance standpoint, we wouldn’t be surprised to see periods of consolidation or pullbacks in the tech sector in 2026, even as their fundamental outlook remains strong. The year 2025 was characterized by very narrow market leadership – a handful of AI-exposed stocks drove a large portion of index gains. In 2026, we expect broader participation or at least some rotation. If interest rates remain relatively high, the lofty price/earnings multiples of growth stocks could come under pressure; any disappointment in earnings (say, if AI-related revenues don’t meet the aggressive growth assumed by analysts) could trigger sharp corrections in those stock prices. That said, the tech sector as a whole still offers secular growth that many other sectors lack. We remain overweight selective technology industries, especially those tied to AI, but we emphasize active selection and risk management – owning a basket of AI beneficiaries that includes not just the obvious big-cap names but also mid-cap innovators and legacy companies successfully pivoting to AI. We also pay attention to funding and investment trends: our research shows that the leading AI firms plan to invest roughly $2.1 trillion in capex and R&D between 2025 and 2027. These heavy investments, while risky, are backed by strong balance sheets and cash flows. To maintain investor confidence, these companies are likely to employ diverse financing channels – from leasing equipment to issuing bonds – to fund growth without denting earnings too much. Tech investors should keep an eye on credit markets, as increased borrowing by tech giants can be a double-edged sword (facilitating growth but adding financial risk).

The public AI and tech markets in 2026 present a story of continued growth underpinned by real economic transformation. The sector will likely remain a primary engine of wealth creation, but with bouts of volatility. By end-2026, it’s quite possible we see the sector at higher levels than today – supported by another year of solid earnings – but the road could be bumpy. LupoToro’s perspective is that one should participate in this theme, but do so with careful diversification (within tech and across sectors), keeping an eye on valuation discipline and being ready to take profits or hedge when exuberance far outpaces fundamentals.

Property Markets

Global property markets in 2026 are at an interesting inflection point. The rapid rise in interest rates during 2022–2024 cast a long shadow over real estate, cooling housing booms and putting pressure on commercial property valuations. As we step into 2026, the backdrop is gradually shifting. Interest rates in many economies are stabilizing or even edging down, which alleviates one of the biggest drags on real estate. However, the adjustment is far from uniform across regions and property types.

Starting with residential real estate: In the United States, higher mortgage rates over the last two years led to a significant affordability squeeze, especially for first-time homebuyers. Home sales volumes fell and price growth flattened in 2025, with some previously hot markets seeing slight declines. We expect 2026 to bring a modest recovery in U.S. housing activity. Mortgage rates could drift a bit lower if the Fed eases, and even a plateauing of rates will help buyers adapt. Importantly, the U.S. still has a housing supply shortage after a decade of under-building, so demand remains underlyingly strong. If 30-year mortgage rates ease toward, say, the 5-6% range by late 2026 (from 7%+ in 2025), we could see a 2-4% rise in national home prices for the year and a pickup in sales, particularly in more affordable regions and suburbs. It’s not a return to the roaring price gains of 2021, but a step out of the doldrums. In Europe, the story varies: countries like Germany and the Nordics experienced housing price corrections in 2024-25 as financing costs jumped. Those markets may stabilize in 2026 as well, though any recovery will likely be slow. The UK, as noted, might see a leveling off in its housing market decline if mortgage costs peak and consumer real incomes improve. One trend to watch is that institutional investors (pension funds, private equity) are increasingly eyeing residential rental properties, attracted by rising rents and the defensive nature of housing – this could provide support to the market and new capital for development of rental housing.

Turning to commercial real estate (CRE): This sector faces more serious challenges. Office properties worldwide are dealing with the fallout of hybrid work; demand for office space is structurally lower than pre-pandemic, and many older or less ideally located buildings have seen significant drops in occupancy and value. In the U.S., office valuations in major cities are down anywhere from 20% to 50% from their peak, and we expect further strain in 2026 as leases roll over and companies consolidate space. Landlords with high debt coming due might be forced into distressed sales, especially if lenders remain tough. Not all is grim in CRE, however. Logistics and industrial properties – like warehouses and distribution centers – continue to benefit from the e-commerce boom and supply chain reconfiguration. Vacancy rates in modern logistics facilities are low, and rent growth there outpaces other segments. We also see bright spots in sectors like life-sciences labs, data centers (demanded by the AI and cloud growth, though they face high power costs and need for cooling infrastructure), and in multi-family rental apartments (where high house prices and mortgage rates earlier pushed more people to rent). For retail properties, the picture is mixed: high-end retail and well-situated shopping centers have recovered foot traffic, but many secondary malls are struggling to reinvent themselves in an online-shopping era.

One theme across both residential and commercial property is the focus on quality and sustainability. Newer buildings with green certifications, energy-efficient systems, and modern amenities are commanding a premium. Tenants and buyers are willing to pay up for properties that promise lower operating costs (utilities can be a huge expense) and a smaller carbon footprint, especially as regulations increasingly require energy efficiency. This is leading to a bifurcation: prime properties hold their value or appreciate, while older, inefficient properties might become obsolete unless upgraded (a process often called “brown to green” retrofitting in the industry).

In terms of investment strategy, LupoToro sees real estate as a sector where selective opportunities are emerging in 2026. Publicly traded real estate investment trusts (REITs) were beaten down in 2025 due to interest rate fears; some now trade at substantial discounts to the appraised value of their properties. If the interest rate outlook improves as we expect, quality REITs in areas like residential, industrial, or self-storage could rebound. In private markets, distressed asset hunting might become viable – especially in the office sector, nimble investors with expertise could acquire properties at deep discounts and repurpose or upgrade them (for example, converting some offices to residential use in certain cities, though this is complex). That said, caution is warranted: the adjustment in real estate is slow-moving, and catching the proverbial falling knife is a risk if one jumps in too early or in the wrong location/segment. Our approach is to focus on fundamentals – demographics, job growth, location – and on sectors with secular support. The 2026 outlook for property is better than 2025’s, but it’s a guarded optimism, dependent on the path of interest rates and the broader economy.

Commodities Outlook

Commodity markets are entering 2026 with a somewhat inverted narrative compared to a few years ago: energy prices are expected to cool, while certain metals are heating up. This dynamic is a function of both supply developments and shifting demand patterns, many of which tie into global policy trends and the energy transition.

Starting with energy: The oil market, which was tight and volatile for much of 2022-2024, appears to be heading toward a period of oversupply. Major producers in OPEC+ ramped up production in late 2025, and new projects (which were initiated during the high-price environment) are coming online. Meanwhile, global oil demand growth is modest – electric vehicle adoption and efficiency improvements are curbing oil consumption growth in developed markets, even as emerging economies still show increases. Barring a major geopolitical disruption, analysts predict that 2026 could see global oil inventories rise and prices soften. We at LupoToro concur that Brent crude oil is likely to average lower in 2026 than in 2025, perhaps in the mid-$50s to low-$60s per barrel range. This is a welcome development for net oil-importing countries and for inflation generally (cheaper fuel will help keep headline consumer prices in check). However, for oil-exporting nations and energy companies, it means a more challenging environment, emphasizing cost discipline and efficiency. Natural gas tells a similar story: Europe’s gas crisis has eased as the region sourced alternate supplies and aggressively built storage and LNG import capacity. New LNG export facilities in the United States are set to come online through 2026, increasing global gas availability. European gas prices, which spiked to extreme levels in 2022, have come down to near historical averages, and barring an unusually cold winter or renewed conflict disruptions, should remain manageable in 2026. One caveat: lower prices could sow the seeds for future volatility if they discourage investment too much – for instance, a “lower for now, higher later” scenario if underinvestment leads to shortages a few years out. But in the near term, energy markets look to be in a cooling phase.

In contrast, industrial metals – particularly those crucial for clean energy and high-tech industries – have a more bullish underpinning. Copper is a prime example: it is a vital component for electrification (used in electric vehicles, power grids, renewable energy systems), and the supply has struggled to keep up with the projected demand surge. We foresee copper markets remaining tight in 2026, which could keep prices elevated. Similarly, aluminum demand is strong (used in lightweight vehicles and packaging), and there are constraints on increasing output – energy costs and emissions targets have led China, the world’s largest aluminum producer, to cap capacity, and some smelters in Europe face high electricity prices. This suggests aluminum prices will be well-supported. Lithium and other battery-related metals (nickel, cobalt) had a boom and then a correction in 2025 as new mining projects came online and some short-term gluts emerged. But looking at 2026 and beyond, the EV revolution continues and these markets may tighten again; we expect price volatility but generally a high plateau for battery metals due to secular demand. On the other hand, not all metals are poised to rally – iron ore, for instance, might see weaker demand as China’s construction slows, and nickel has seen surpluses due to massive capacity additions in Indonesia (especially in the form of nickel pig iron for steel and chemical nickel for batteries). Thus, the metals outlook is bifurcated: those linked to future-facing industries (electrification, grid infrastructure, semiconductors) are potential winners, while those tied to traditional construction might lag.

Moving to precious metals: Gold had an impressive run in 2025, hitting record highs as investors sought hedges against inflation, and central banks (notably in emerging markets) kept buying gold to diversify reserves. With inflation moderating and interest rates possibly peaking, one might think gold could lose some luster. However, we believe gold can remain strong and possibly even reach new highs in 2026. The rationale is that if central banks start to ease (even gradually), real interest rates could decline, which is positive for a zero-yielding asset like gold. Moreover, continued geopolitical uncertainties and the desire for a hedge against currency volatility sustain strategic demand. We’ve also observed that dedollarization themes – countries seeking alternatives to the U.S. dollar for reserves and trade – have indirectly benefited gold. Silver could ride on gold’s coattails to some extent, and it also has its own industrial demand story (silver is used in solar panels and electronics).

Agricultural commodities are another important part of the picture. In general, good harvests in 2025 led to a softening of many agri commodity prices. Global wheat and corn supplies recovered from earlier droughts, and improved trade relations (for instance, Ukraine finding export routes despite conflict) eased some pressures. As we look to 2026, there are early signs that grain prices might have bottomed and could firm up if demand grows or if weather is less favorable. Corn and soybeans, for example, could see support from biofuel policies (many countries are increasing biofuel blending which lifts demand for these crops). Yet, any price increases likely will be capped by still adequate inventories and the ability of farmers to ramp up planting if prices rise too much. On the softer commodities, some are moving into surplus: sugar production is rebounding (big crops in Brazil and India), which could push sugar prices down from recent highs. Coffee and cocoa have more complex dynamics (with cocoa possibly in surplus leading to price moderation, and coffee depending on cyclical crop yields in key countries). For consumers worldwide, food price inflation should continue to ease in 2026 if these trends hold, contributing to an overall more stable inflation environment globally.

Our commodities outlook for 2026 is one of rotation: energy easing off the boil, metals picking up strength, and precious metals staying resilient. For investors, this means strategies that worked in 2022 (when oil was king) need to be revisited. 2026 might favor those who tilt toward metals and possibly gold, while being cautious on energy producers (unless they have very low production costs or strong dividends to compensate for price dips). It’s also a year where commodity consumers (companies for whom energy or materials are input costs) could get some relief – a positive secondary effect for sectors like airlines, chemicals, and manufacturing, which benefit from cheaper fuel and materials. As always, commodities are volatile, and unforeseen events (a geopolitical flare-up affecting oil, a mining strike cutting metal supply, or El Niño impacting crops) can upset the balance. That’s why we incorporate commodities in our portfolios not only for potential return but also as a diversification tool – their performance drivers are different from stocks and bonds, providing balance under various economic scenarios.

Bitcoin and Crypto Markets

The cryptocurrency market ended 2025 on a volatile note, and we approach 2026 with a cautious stance on this asset class in the near term. After an exuberant bull run that saw Bitcoin and several altcoins reach all-time highs in mid-2025, the latter part of the year introduced a reality check. Bitcoin, which had surged strongly (even breaching the once-unthinkable $100,000 threshold during 2025), struggled to maintain its momentum. By the start of 2026, Bitcoin is fighting to reclaim the $90,000 level that marked a key technical support in its recent trading range. Our analysis suggests that what we are witnessing now is likely a classic “relief rally” within a broader cooling trend – a bounce off the late-2025 lows, but one that may not have the fuel to reach new highs immediately. We expect this rally, if it continues into early 2026, to form a “lower high” compared to the peak, followed by another rollover that could potentially retest or undercut the late-2025 lows (for context, Bitcoin’s recent low was in the low-$80,000s). In other words, we wouldn’t be surprised to see Bitcoin trade down into the $70,000s in the coming months before a more sustainable uptrend resumes.

Our tempered short-term outlook for crypto is driven by several factors. First, from a technical and on-chain perspective, we observe signs that long-term holders (those who held Bitcoin for a year or more) took substantial profits during the 2025 rally – and notably, some even sold during the subsequent pullback, indicating reduced conviction or a need for liquidity. Whenever dormant coins are moved and sold in size (which blockchain data showed in March 2024, January 2025, and again mid-late 2025), it often precedes periods of consolidation or correction. This distribution suggests that a reset of holders might be necessary (with coins moving to new long-term investors at lower prices) before the next bull phase can truly launch. Second, the macroeconomic backdrop for crypto is less outright bullish than it was in, say, 2020-2021. While global central banks are no longer tightening aggressively and some are easing, we’re not seeing the kind of large-scale liquidity injections (“quantitative easing”) that previously propelled speculative assets. Think of the current environment as a gentle tailwind at best – the U.S. and other economies are in a mid-cycle phase with interest rates off their peak but not plummeting, and inflation, though lower, is still around 3% in the U.S., which keeps central bankers somewhat cautious. This scenario is more akin to 2019’s “mini easing” than the massive stimulus of 2020. It implies that liquidity conditions will improve only gradually for crypto, rather than flooding in.

Investor sentiment in crypto is also undergoing a shift. The spectacular gains of early 2025 have given way to more sober reflections, and many so-called “permabulls” (permanent bulls) who were calling for Bitcoin $200k+ in 2026 have toned down their rhetoric. At the same time, there are extreme pessimists (permabears) predicting a plunge back to $50k or even lower. LupoToro’s view is to avoid such extremes; instead, we maintain a balanced, data-driven perspective. For long-term believers in Bitcoin’s value proposition (whether as digital gold, an uncorrelated asset, or part of the future financial system), lower prices are opportunities. It’s worth remembering how effective a dollar-cost averaging approach can be – for example, someone who steadily accumulated during the depths of the last bear market (late 2022) was able to purchase 3–4 times more BTC for the same dollar amount than if they only bought at the November 2021 peak. Those accumulated coins then appreciated dramatically in the subsequent rally. We expect a similar principle to hold: if Bitcoin indeed dips to more attractive valuations in 2026, savvy long-term investors are likely to step in, viewing it as a “gift” to strengthen positions. Our strategy at this juncture is to remain patient and disciplined. We keep a core exposure to crypto (so as not to miss unexpected upside jolts), but also hold a healthy amount of cash on the sidelines, ready to deploy should deeper value emerge. We explicitly caution against heavy leverage in crypto trading; the asset class is volatile enough on its own, and leverage can force premature exits due to short-term swings – survival and staying power are crucial to benefit from crypto’s long-run uptrend.

In terms of specific levels and market internals: Bitcoin needs to decisively break above the ~$91K range low (a level that had acted as support during its top formation) to signal that bulls are back in control. Failing that, immediate support lies around the mid-$80Ks and then the low-$80Ks; a breach of those could open the door to the $70K–$75K zone, which is where we see strong long-term support (interestingly, that area aligns with some long-term technical indicators like the 200-week moving average and the aggregate cost basis of recent buyers). Ethereum, the second-largest crypto, has underperformed Bitcoin in late 2025, reflecting a rotation out of higher-risk altcoins into the relative safety of BTC during uncertain times. Ethereum’s ability to reclaim key levels (such as US$2,500) will be a barometer of risk appetite returning; otherwise, it faces downside risk toward the low $2000s in a weak scenario. Other major altcoins like XRP or Solana saw huge booms and busts in 2025 – their path forward likely depends on Bitcoin’s leadership. If Bitcoin wobbles, these alts could retrace significantly; for instance, XRP might revisit support around $0.60–$0.80 (after its legal-driven surge in 2025), and Solana, despite its strong developer ecosystem, has historically shown a pattern of explosive gains followed by steep corrections. We recommend focusing only on altcoins with clear use cases and strong networks, and even then, sizing positions conservatively.

One indicator we monitor closely is stablecoin dominance, particularly Tether (USDT) dominance in the crypto market. USDT dominance rising means traders are moving into stablecoins, often a sign of fear or a desire to wait on the sidelines. If we see USDT’s market share climb above ~6.7% of total crypto market cap, that could indicate a capitulation-style exodus from risk – paradoxically, those moments of maximum pessimism often precede the next big opportunities (the classic “darkest before dawn” in crypto). Indeed, a final wash-out, where even loyal holders become disillusioned, could set the stage for a much healthier next bull cycle.

From a longer-term perspective, our conviction in crypto’s transformative potential remains. Innovations in decentralized finance, upcoming Bitcoin network upgrades, and increasing institutional interest (despite regulatory uncertainties) form an underpinning that keeps us bullish on a multi-year horizon. We suspect that late 2026 could potentially mark a major cyclical low, as that timing would align roughly with post-halving dynamics (Bitcoin’s next halving is in 2028, and typically the strongest rallies occur after a bear market that bottoms roughly 18 months post-halving). However, we will let the data and price action dictate our moves rather than rely on any fixed schedule.

For the general public and investors considering crypto, our advice is twofold: risk management and secure custody. Only allocate what you can afford to have volatile in the short run, use tools like stop-losses or options to manage extreme downsides if you are trading actively, and absolutely ensure that your crypto assets are stored securely (hardware wallets or reputable custody solutions, rather than leaving large amounts on exchanges where you hold no keys). The crypto market in 2026 is likely to continue its maturation, perhaps with more regulatory clarity emerging in major jurisdictions, which in turn could invite the next wave of participants when conditions turn favorable again. Until then, we stay vigilant, neither euphoric nor despondent, but steadfast in our research-driven approach to navigate the crypto waters.

In aggregate, LupoToro Group’s outlook for 2026 is one of guarded optimism, with a recognition that we are in a more discriminating market environment. Unlike the liquidity-fueled rising tide of a few years ago, 2026 will reward precision– in picking assets, timing decisions, and managing risks. Global growth is on track, but uneven; inflation is coming under control, but not yet vanquished; innovation abounds (AI, green tech), yet markets must sort winners from losers. In such a milieu, we believe our multi-faceted strategy – active management in public markets, careful selection in private markets, portfolio innovation, and thematic investing – will serve investors well. We stand ready to adapt as new data and developments unfold, and we remain committed to finding opportunities in all market climates.