2026 Multi-Asset Strategies Outlook

We’re analyzing the key factors likely to influence markets and investors as we approach 2026. Here are some major issues across various asset classes that we see impacting the landscape.

U.S. Debt Load and Possible Yield Curve Control

The U.S. is now the second-most indebted major economy in the world, as measured by its debt-to-gross domestic product (GDP) ratio. (Japan is the perennial leader by this metric.)

The U.S. leads the world in total debt, at $38.3 trillion, more than twice that of the second-largest borrower, China. This makes interest expense a significant component of the U.S. budget and puts upward pressure on yields, which in turn hurts stock valuations.

Using more short-maturity debt, such as Treasury bills, can be beneficial if short-term rates remain below long-term rates. However, it can be detrimental if rates rise, as short-term borrowings roll over quickly.

Another approach is to keep longer-term rates stable through what is known as “yield curve control,” where the Federal Reserve (Fed) buys Treasury bonds to maintain rates across the curve at desired levels.

Controlling the yield curve isn’t a new idea, and even Fed Chair Jerome Powell has suggested he might be open to it. But, this strategy comes with potential risks: if the government puts too much money into the financial system, it can cause prices to rise faster than usual, leading to inflation. It can also make it harder for investors to determine the true value of assets, as normal market signals become distorted.

Concentration and Correlation

The S&P 500^® Index is heavily concentrated, with only 10 stocks now accounting for about 40% of the index’s market value. But it’s not just the size of these giants that draws attention because of their significant influence on the overall market; it’s also their concentration.

Eight of the top 10 are in technology and tech-adjacent sectors. This makes the S&P 500 far more correlated with tech stocks than it was in the past. This lack of diversification is particularly risky for passive index investors, who, by definition, continue to invest more in mega-cap tech stocks.

We believe that investing in technology is a promising strategy for many investors. However, the level of concentration and correlation, particularly when relying on index-based investing without active management, raises concerns.

Will ‘Small Is Beautiful’ Make a Comeback?

Some market watchers claim that the historical outperformance of small-cap stocks is gone forever. Their view is that as private equity funds increase their investments in small businesses — and occasionally larger ones — they will hold onto these companies as private entities until they grow beyond small-cap status.

Although private equity firms do play a role in keeping some small companies private for longer, we don’t think this is the main reason small-cap stocks have been underperforming large-cap indexes. There are other, more practical factors at play:

• Sector distributions. Small-cap indexes tend to have their largest weight in the financial sector, whereas large-cap indexes are dominated by the technology sector.

• Interest rate sensitivity. Small firms are more rate-sensitive as they typically borrow from banks and other lenders that charge a floating interest rate. In contrast, large firms typically use the public bond market to borrow at fixed rates, which makes their costs more predictable.

• Index investing trends. When more people invest in funds that simply track the market, more money flows into the biggest companies, pushing up their prices compared to those of smaller firms.

In our view, small-cap stocks will come back around, as much of their recent underperformance compared to large-caps stems from sector-specific and macroeconomic factors that shift over time.

We can’t predict exactly when this will happen, but we believe it’s important to be open to maintaining some exposure to small-caps, despite their weaker returns in recent times.

All That Glitters … What About Gold?

Gold experienced a sharp rise in 2025, but will this trend continue? Many people view gold as a hedge against economic downturns, inflation and weakness in the U.S. dollar. This occurs when the value of the dollar is falling, and foreign investors start pulling back from investments tied to the dollar.

However, gold prices can remain stagnant for years or become quite volatile. Following the oil crisis of the 1970s, gold prices remained stable for over 25 years before declining by 40% during the 2008 financial crisis.

It’s also important to remember that gold generates no income. This reduces its appeal when interest rates rise and makes it difficult to assign it any fundamental value.

Viewing gold as a strategic asset or a permanent part of one’s asset mix hasn’t proven effective over time. Other investment options have historically helped mitigate certain risks.

• If the U.S. dollar is weakening, you might consider foreign stocks, bonds or currencies (FX).

• During a recession, U.S. Treasuries could be beneficial.

• To help protect against inflation, you could consider Treasury Inflation-Protected Securities (TIPS).

Alchemists aimed to turn lead into gold; beware of the reverse: Gold can become heavy, weighing down your portfolio for years.