New Narratives Needed

The Weekender is my bi-weekly take on macro shifts and emerging themes. It’s not investment advice — or even our firm’s official view. I aim simply to inform, challenge, and maybe entertain. If you’d like this in your inbox every other Saturday morning via Northern Trust, subscribe to The Weekender.

The Weekender: An Emerging Global Trend for Equities

The Task

Earlier this week, a client sent me the task to look beyond the growing expectations of a near term pull-back (September is typically a poor month) to the next 12-24 months, and to anticipate what new themes or narratives will emerge, and where possible, provide the non-consensus view. As they’d assumed the bear position and had articulated reasons for “what could go wrong,” my job was to counter, assume the bull position and ask, “what could go right”?

Key Themes

In terms of key themes — those mega-forces that challenge core assumptions, reshape geo-politics (fracking, nationalism), or even disrupt dominant macro/business cycle narratives (think ChatGPT launching the same week 100% of analysts predicted a recession) — I doubt much will change next year. The same big forces — demographics, debasement, geopolitics, technology, and energy transition — will keep driving markets, especially where they intersect.

Take demographics and technology: aging populations and fewer workers, more debt, and currency debasement are driving demand for digital scarcity (demographics + tech). Those same trends boost interest in humanoid robotics — a topic with huge market potential (more on that in future editions). For now, here’s my attempt to identify subplots within these enduring chapters of what will eventually become the 2026 Market Almanac. Once it’s written.

Home Bias

A new form of nationalism that, like in the U.S., is gaining traction in the U.K., Europe, and even China, may prove a positive trend for equities long-term. In the U.K., private individuals once owned over 80% of companies at the start of WWII, according to John Plender in That’s the Way Money Goes (ISBN: 9780233973982). Chinese savers hold the equivalent of about 50% of gross domestic product (GDP) in cash, and Europeans have roughly €11.5T sitting in banks.¹

Right now, reform efforts and incentives — like Mansion House and proposed reforms to the Individual Savings Account (ISA) system in the U.K., new tax breaks in China (see below), and a recently discussed Swedish-style stock savings account in Europe — aim to reverse these trends. The goal: lift household wealth, boost confidence, spur consumption, and improve firms’ access to funding. In Sweden, stock investing is practically a national sport.² Over 50% of savings go to equities — twice the euro area average.

Imagine, then, what might happen if other Europeans embrace this idea. The marginal buyer could be enormous. After all, European savings are currently worth more than twice the total value of the Eurostoxx.

Young Bulls

After the 1929 peak, it took the Dow 34 years³ to reach new highs — then it compounded double-digit returns for a decade. The pattern repeated after the 1970s and again following the 2000 peak.

The lesson? When indexes break long-term ranges, the market has historically seen that  sustained runs often follow.

Now, turning to developed markets outside the U.S.: the Eurostoxx is testing its 2000 high, Japan’s Topix recently broke 1989 levels, and the FTSE is hitting new all-time highs — though few notice, since only 8% of Brits own it.

Following Sir John Templeton’s classic market cycle (“bulls begin in pessimism, grow in skepticism, mature in optimism, die in euphoria”), we’re still early. Euphoria awaits. These are young bulls, and probably worth riding. The same logic might apply to under-owned assets like gold — and bitcoin.

(P.S. New domestic sources of liquidity are one thing, new foreign buyers are another. More now seem interested in such markets as they seek greater diversification in portfolios.)

Buy China Before She Buys Herself

China’s equity markets could continue to rally — not just because of tax incentives, but because China’s President Xi wants them to. As any investor in property, luxury goods, or education over recent years will tell you, it’s seldom wise to “fight the command of a command economy.” In such systems, what becomes official policy usually happens.

And now, it’s official policy to stabilize property, support stocks, and end deflation. With respect to stock markets, driving equity into the system helps rebalance an over-reliance on property collateral, diversifies wealth drivers, and suggests Western analysts’ fixation on property and stimulus may be missing the bigger picture.

The lesson: don’t judge a fish by the way it climbs a tree.

Historically, China’s market reforms (1999–2001) doubled stocks and boosted retail sales. Today, new incentives, such as tax-deductible dividends, government loans for buybacks, and linking state-owned enterprise (SoE) targets to market value, are in play. The recently announced dividend deductions are particularly powerful.

As mentioned, there’s estimated to be up to $8 trillion in low-yield savings earning less than 1.5%. Chinese stocks are yielding just under 4%, meaning investors may be able to lock in positive 4% carry — tax free — with a free option on upside.

So, even if you don’t buy China, she might buy herself.

Signs of Reflation

Two other recent announcements from China are worth noting, for their impacts could be felt worldwide.

The first involves anti-involution measures aimed at removing overcapacity in certain sectors (on top of current efforts to remove the housing inventory overhang) and legally prevent price discounting. In short: China wants to end deflation. It’s official.

The second announcement was the Tibet Dam project, a mega-infrastructure project even larger than the Three Gorges dam, expected to generate more power than the U.K. If China succeeds in removing overcapacity through a combination of supply- and demand-side measures, the implications go well beyond domestic margins. It could reinforce global reflation efforts, boost commodity demand, and benefit companies (and countries) with claims on those resources.

Good news for the FTSE.

Key Charts I’m Watching for Signs of Reflation

SHProp Index (has it bottomed?), Producer Price Index (PPI) (ending 34 months of contraction?), iron ore’s rise, the CRB RIND Index (raw materials used in construction, ex-oil), and the S&P Metals & Mining Select Industry Index, which just broke its 2008 high, echoing lessons discussed in Young Bulls, above.

Are these early signs of reflation?

From Consumer Slowdown To Industrial Super-cycle

Pursuant to the The Task I’ve been set (to adopt a positive view), then peering into 2026 through my rose-tinted glasses, and assuming a lot goes right (it seldom does), then I see the possibility of us moving past labor uncertainty, Powell/Fed drama, One Big Beautiful Bill Act (OBBBA) debates, geopolitical concerns, deficit worries, and tariff noise. Instead, I envision recovery rooted in a U.S. CapEx boom — boosting growth, payrolls, productivity, and shrinking deficits, while tariff revenues earn bipartisan support and even praise from ratings agencies.

DOGE returns with plans to cut 100,000 regulations. Permitting laws are relaxed, unlocking billions in stalled projects. Treasury issuance is met with a surge in demand following SLR reform and stablecoin proliferation. “Peace dividends” from lower oil prices act like a tax cut, while companies discover AI allows them to do more work with fewer workers, setting the stage for real productivity gains.

This gives the Federal Reserve room to layer on top of the 88 central bank cuts we’ve already seen, adding liquidity at a time financial conditions are already loose and global M2 is near a record.

The U.S. economy could be entering a CapEx super cycle, catalysed by AI infrastructure, with growth multipliers in energy and construction-related sectors. The latter is finding support from lower rates (and Warren Buffett’s latest endorsement). Reshoring, reindustrialising energy, and the efforts of the Office of Strategic Capital are being amplified by the OBBBA, which offers massive incentives in the form of full capital expensing — which some believe could slash corporate tax rates and free up cashflow for further investment.

Of course, full expensing isn’t new — it was part of the original Tax Cut and Jobs Acts (TCJA) and it helped lift CapEx between 8%-14% back then.⁴ But this time, under the banner of national security (the AI arms race), tariff exemptions, and trade-deals, others want in — at scale.

CapEx Super Cycle Means Commodities

A CapEx revival in the U.S., China’s mega-projects, strategic stockpiling for national security, and the largest energy transition in history, all point to one thing: commodities (outside oil) might face years of sustained demand growth.

On the climate front, China is set to install more solar capacity this year than the U.S. has in its entire history. That’s good news for silver because it’s a key component of the manufacturing process of solar. Meanwhile, Trump has anointed nuclear as a solution, setting off a gold rush for uranium. And the Organization for Economic Co-operation and Development (OECD)⁵ projects demand for transition-critical minerals will rise 4–6x between 2020 and 2030. Supply probably can’t keep up. Prices probably will.  

Perhaps this is what the S&P Metals & Mining Select Industry Index is trying to tell us?

Finally: “Houston, We Have a Problem”

James Lovell, Apollo 13 commander, and the man behind the iconic phrase, died this month.

Upon returning to Earth, he called it a “paradise.”

“We don’t go to heaven when we die, we go to heaven when we’re born.”

RIP

Best,
Gary

 

¹  Christian Lagarde speech: https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp241122~fb84170883.en.html

²  EU see Swedes as model for retail investing: https://amwatch.com/AMNews/article18445766.ece

³  Dow Jones - 100 Year Historical Chart

⁴  How much did TCJA raise investment? How much did TCJA raise investment? | Brookings

⁵  OECD Paper: Raw Materials Critical for the Green Transition: https://www.oecd.org/content/dam/oecd/en/publications/reports/2023/04/raw-materials-critical-for-the-green-transition_85a69007/c6bb598b-en.pdf