Mark Harries, chief investment officer at Titan Square Mile, reviews the key market developments of 2025 and sets out his outlook for 2026, highlighting the themes and risks investors should be watching in the year ahead.
Key observations for 2025 include:
- Inflation has broadly come down from the highs of 2021–2023 but remained uneven across regions and categories in 2025. Interest rates have settled at materially higher levels than the pre-pandemic era and central banks are navigating a delicate path between supporting disinflation and avoiding tipping economies into recession.
- Global equities delivered strong returns in 2025, led by China and the Emerging Markets and largely driven by AI-exposed technology names.
- Bonds had a more subdued year with yields settling into a new, structurally higher range around the 3–5% band for core government bond markets.
Looking ahead to 2026, dominant themes for investors are likely to be:
- Central bank comments and the timing/pace of rate cuts
- The impact of AI
- The resilience of consumer spending and corporate margins
- The path of real (inflation-adjusted) yields, which will determine the valuation multiple investors are willing to pay for growth
Mark Harries, Titan Square Mile’s CIO, said, “We believe that there are two scenarios which may well play out in 2026. First, a so-called soft landing for the global economy with orderly cuts in interest rates. This would see inflation continuing to drift down toward central bank targets and the labour market easing gradually without a spike in unemployment. Central banks would continue a measured sequence of cuts in interest rates across 2026, depending on the data.
Second, is one in which inflation proves stickier, driven by services/shelter or wage pressures, so central banks then delay cuts in rates. Growth then slows, but still likely to avoid a recession. Bond yields remain elevated.
There are several items that we will be monitoring closely over the coming months. These include monthly inflation prints and employment data, which will set the tone for the US Federal Reserve, the ECB and the Bank of England.
Central bank meeting minutes and guidance will also be important; their decisions and communications of balance-sheet strategy are central to moves in yields in the bond markets.
We will be watchful of earnings season surprises. The extent to which AI investments translate into earnings and profits will be important in determining whether this segment of the market continues to be the dominant theme.
In what continues to be an unsettled world, geopolitical shocks could lead to energy or food supply disruptions and general market uncertainty. This in turn could potentially risk a return to higher headline inflation.
It goes without saying that Trump and the political landscape will be influential.
Finally, we will monitor credit spreads and corporate issuance as a rapid widening in bond yield spreads can be a sign of broader risk aversion.
Entering 2026, investors face both opportunities and crosswinds. Central banks are on a knife-edge between cutting rates, which may stoke inflation, and not doing so and thereby choking off growth. The rise of AI and related capex is a genuine structural force that has powered much of 2025’s returns, but concentration risk, valuation dispersion, and the uncertain path for bond yields argue for continued portfolio diversification.”
