2026 places us in a transition scenario, where the trade tensions of 2025 begin to normalize and global monetary policy seeks to stabilize. While world economic growth is projected to be moderate, slightly below 3%, the opportunities for investors lie in the ability to identify value outside of dominant trends and leverage structural strengths, especially in Mexico. But let’s delve further into the context of the year that is ending.
Despite episodes of uncertainty, especially those triggered by US tariff policy, the US economy continues in an expansionary phase. Our analysis suggests that nervousness about a new slowdown or the risk of a recession is not on the horizon, with a very low probability remaining in the next 12 months.
The US economy continues to gain traction, driven by the industrial sector and the completion of new factories. Much of this investment is linked to the artificial intelligence boom, which is generating developments in advanced manufacturing, data centers, and the entire necessary supply chain, including energy. This industrial dynamism remains a “tailwind” for the US economy.
Hand in hand with this continued expansion, the Federal Reserve has gained room to moderate its monetary policy, and the general market expectation is that it will continue cutting interest rates throughout 2026. Market consensus discounts that Fed rates could end up around 3% by the end of 2026. This policy, which promises to be more expansionary, could be positive for asset valuations and financial markets.
Nevertheless, the main challenge to meeting this trajectory is inflation. Although US inflation has been dropping toward the Fed’s target levels, indicators suggest that internal inflationary pressures could persist. The risk is that inflation resurfaces in the economy, which would force the Fed to react accordingly. Historically, we have also observed that a weaker dollar has correlated with higher inflation, as prices in other currencies are imported into the US economy. Inflation levels must be monitored very closely by investors, as any change in price stability could have a relevant impact on monetary policy.
Let’s look at what’s in it for investors.
Fixed Income: The Return of the Term Premium
The environment for defensive investors has changed radically. While recent years offered dollar and peso rates not seen in decades, providing very attractive and above-inflation yields, debt now offers less interesting average yields. Internationally, close to 85% of bonds pay rates below 5%, and 60% pay less than 4%.
However, in Mexico, rates continue to be attractive, located far above inflation levels, which ensures a positive real rate.
Most notable is the return of the “term premium.” For a long time, the sovereign curve in Mexico (and in the United States) was very flat or even inverted, which did not compensate the investor for committing capital to longer horizons. Today, the Mexican yield curve has steepened significantly. This means that, while short-term rates have decreased, there is now an opportunity to obtain higher yields — one or two points above the risk-free rate — by taking on more duration and positioning in longer terms. This allows for a more active positioning to seek added value in fixed income.
Equities: The Dilution of Value in the United States
The US stock market has dominated international performance, driven by the earnings growth of its technological leaders. However, this decade of growth has led to an expansion in valuations that places the US market at levels only comparable to the dot-com bubble of the early 2000s. This makes it a “stretched” market, where we pay more dollars for the earnings generated.
In addition to the high valuation, there is an unprecedented concentration risk. The 10 largest companies in the S&P 500 now represent almost 40% of the index, which contrasts sharply with less than 20% they represented in 2016. This concentration implies that by investing in the index, the investor is taking on a very high risk, dependent on a handful of players.
Earnings growth has also been concentrated in these few players. Historically, investing in the market at such high valuations has translated into low long-term returns (five-year periods), sometimes even zero or negative.
Investment and Diversification Opportunities
Given a stretched US market, the strategy for 2026 must be global diversification. Regions that have performed better in the last year, and that trade at more attractive valuations, include Europe, Japan, and Latin American markets.
Specifically in the region:
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Mexican Stock Exchange (BMV): Despite recent good returns, the Mexican stock market continues to trade at valuations below its own historical average and its international comparables, which suggests potential for good returns going forward.
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Value within the United States: If looking to invest in the US stock market, the focus should be on smaller capitalization companies (small and mid-caps) or out-of-favor sectors. Small and medium-sized companies are not as stretched as the mega-caps and continue to trade at interesting valuations. Sectors like the healthcare sector also show a discount due to political uncertainty.
The key is not to stop having a foot in the US market, which represents two-thirds of global capitalization, but rather to diversify to capture value in other regions and sectors that offer better valuations and a more protected return potential.
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