In 2025, Donald Trump shook up the global economy and the stock market with his tariffs. Tom Stevenson analyzes which strategies could make sense for 2026.
After looking at the lessons I learned from 2025 last week, it’s time to turn my attention to 2026. after three years of rising markets, it’s natural to be optimistic, but wise to temper that with caution.A good argument can be made for a fourth year of decent returns, but it would still be wise to put some protective measures in place.
Disclaimer
Tom Stevenson is an Investment Director at Fidelity International. In this text he presents his personal assessments. The content is not investment advice.
The trading floor of the new York Stock Exchange. In the digital age there isn’t much going on here anymore. © IMAGO/JOHN ANGELILLO
I think four strategies will reward investors next year. The first is to stay invested, but with a watchful eye on the cycle as it unfolds. The economic outlook is positive, even if cracks are beginning to appear in the labor markets on both sides of the Atlantic. Growth continues and will be further supported by moderate monetary easing in 2026.
Bear markets or sharp corrections are rare in the absence of a recession – and that seems unlikely. A good framework for looking at the market cycle is Goldman Sachs’ four-part rotation,which goes from despair to hope,growth and then optimism. The emergence of Covid six years ago marked the beginning of a very short period of despair, the rest of
Japan: An Emerging Investment Opportunity
For years, Japan has been overlooked by many investors, overshadowed by faster-growing economies. However, this is changing. Japan is emerging from a prolonged period of low inflation and interest rates, presenting a unique investment opportunity with currently low valuations. Analysts are increasingly optimistic about the contry’s potential, driven by rising wages, increased consumer purchasing power, and meaningful corporate reforms.
The Shift in Japan’s Economic Landscape
Japan’s economy has historically struggled with deflation and stagnant growth. For decades, the Bank of Japan maintained ultra-low interest rates to stimulate the economy, but this had limited success. Now, several factors are converging to create a more favorable environment for investment.
Rising Wages and Consumer Spending
A key driver of this change is the increase in wages. after years of stagnation,Japanese companies are finally raising salaries,responding to labor shortages and government pressure. This increase in disposable income is boosting consumer spending, which is crucial for sustained economic growth. Increased purchasing power translates directly into higher demand for goods and services, benefiting businesses across various sectors.
Corporate Governance Reforms
Significant corporate governance reforms are also playing a vital role. These reforms, aimed at increasing transparency and shareholder value, are making Japanese companies more attractive to investors.They encourage companies to improve capital efficiency, return capital to shareholders through dividends and share buybacks, and adopt more innovative business practices. These reforms are now being mirrored in South Korea, suggesting a broader regional trend.
The Legacy Economy Catching up
While technology companies have dominated recent market gains, the broader “legacy economy” – sectors like financials and mining – is beginning to benefit from increased capital spending driven by technological advancements. This diversification is creating a more balanced and resilient economic landscape. The technology sector, often referred to as the “magnificent seven,” is still projected to contribute significantly to S&P 500 earnings growth, but the widening participation of other sectors is a positive sign.
ETFs or Individual Stocks? From Index to Active Stock Picking
Investors have several options for capitalizing on this opportunity. Exchange-Traded Funds (ETFs) offer a diversified and cost-effective way to gain exposure to the Japanese market. These funds typically track a specific index, such as the Nikkei 225 or the TOPIX. Though, for investors seeking higher potential returns, active stock picking might potentially be a more suitable strategy. This involves identifying individual companies with strong growth prospects and attractive valuations.
Key Takeaways
- Japan is emerging from years of economic stagnation.
- Rising wages are boosting consumer spending.
- Corporate governance reforms are improving investor confidence.
- The legacy economy is benefiting from technology-driven capital spending.
- Investors can access the Japanese market through ETFs or individual stock picking.
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