Cutting through the clickbait: a clearer view of 2026
Should you ask a hairdresser if you need a haircut?
Amid the negative, sensational headlines – what Macquarie chief economist Ric Deverell calls “clickbait” – it is crucial for investors to filter out the noise and focus on the underlying economic and business fundamentals. Speaking at an investor briefing for Macquarie clients on December 4, 2025, Deverell provided a clear, cautiously optimistic view for 2026, suggesting that global growth could well surprise on the upside, leading to a positive outlook for risk assets.
Global Resilience: Beyond Geopolitics and Tariffs
Deverell pushed back on what he described as pervasive gloom, arguing that the current level of geopolitical uncertainty is, in the context of history, “quite normal.” He added that sustained periods of complete calm have been rare, and the broader economic and market impacts of these risks are often overestimated.
As far as tariffs are concerned, trade has been diverted rather than destroyed. Tariffs are essentially taxes, and while they have created volatility, their overall effect has been one of trade diversion, with global trade volumes remaining relatively stable rather than collapsing completely. This underlying resilience is a key reason for the prediction of stronger global growth in 2026.
The United States: ready for a revival
Despite a recent ‘data gap’ due to the brief government shutdown, US growth prospects remain solid. Deverell expects a rapid recovery, with the labor market more resilient than many commentators suggest, partly due to immigration.
The Federal Reserve’s View: The Federal Reserve (the Fed) is seen as very supportive, with the market already pricing in an almost certain rate cut next week based on softer labor market data. Deverell expects the Fed to continue providing support into 2026.
Under the “One Big Beautiful Bill,” a significant injection of consumer money, driven by tax returns, is expected in April 2026, which should provide a further boost to economic activity.
The biggest risk to this positive outlook is not a recession, but the potential for the Fed to run the economy too hot in 2026, forcing them to change course and aggressively raise rates in 2027 to combat resurgent inflation.
China and Japan
China is not expected to be the global swing variable in 2026. Although real estate and retail sales remain weak, the export sector of the economy is strong enough to maintain a sustainable growth rate of around five percent per year for the foreseeable future. The upside risk for Australian investors is Beijing’s potential to step in with further stimulus to support growth, which would be bullish for Australian commodity exports.
Japan, on the other hand, seems to have ‘normalised’. After a long period of stagnation and combating deflation, the transition is a good thing. However, deep-seated demographic problems mean that real gross domestic product (GDP) growth is likely to remain weak, suggesting that recent interest rate adjustments have less to do with a booming economy and more to do with a return to normal interest rates.
Australia
Local media often focus on stagnant productivity and sluggish prospects, but Deverell’s view is much more positive.
Three previous rate cuts by the Reserve Bank of Australia (RBA) appear to have successfully stimulated a ‘solid recovery’, although this has led to a challenge: higher-than-desired inflation. Given the recovering economy and persistent inflation, the RBA is expected to remain unchanged through 2026. However, an interest rate increase is also considered unlikely.
Deverell acknowledges that the economy remains heavily dependent on the housing sector, where interest rate cuts have led to a recent price increase and a deepening of inequality. However, recent auction rates indicate that house price growth has peaked, and a flat price outlook is likely if the RBA remains unchanged. Brisbane and Perth, with stronger population growth, could experience further price increases.
Shares
While traditional valuation metrics make stocks look expensive, Deverell cautions against an overly simplistic view. He leans toward the “this time is different” camp, noting that companies today, especially in the technology sector, are structurally different: less capital intensive and more leveraged for global growth.
I would add that the CAPE Shiller ratio for the S&P 500 looks expensive, in part because the denominator uses a 10-year historical average, which has been lower due to the once-in-a-lifetime Covid pandemic.
In any case, Deverell points out that the price-to-earnings (P/E) ratio has historically had a very low correlation with one-year price returns. What really matters is global growth, and on that basis the valuation over a longer term, ten years, is considered good.
Deverell’s positive global growth forecast for 2026 leads him to a positive view on risk assets for the year ahead.
The AI revolution: a boom, not a bust… yet
While Deverell is concerned about the creation of an artificial intelligence (AI) bubble, driven by ‘Tech Bros’ incentive to spend big and win the US-China dominance race, he doesn’t believe it will burst in the near future. He states that the theme ‘needs to be further developed’.
The history of technology adoption is clear: it always takes a long time for deep productivity gains to be realized at the level of the entire economy. While the impact of AI will be significant, it will take much longer than current market narratives suggest. In particular, he notes that the US will likely lead adoption due to its high risk tolerance, while Europe will likely be slower due to regulations.
Finally, concerns about massive data center construction fueling inflation through electricity consumption are likely overstated. Their expected contribution to electricity demand growth is relatively low, although short-term bottlenecks remain a US concern, as does the impact of liquefied natural gas (LNG) exports on domestic gas prices.
Risk
The biggest risk to the global outlook is a US recession, which Deverell says will most likely be caused by a spike and subsequent decline in technology investment.
Deverell’s message to investors is to look beyond the headlines. The global economy is much more resilient than often reported, with central banks continuing to provide support and US and global growth likely to surprise on the upside in 2026, making this a year to embrace risky assets.
He is also the author of the best-selling investing guide to the stock market, Value.able – how to value and buy the best stocks for less than they are worth.
Roger regularly appears on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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