Paul Jackson, Global Head of Asset Allocation Research at Invesco for EMEA, recently outlined his outlook and favorite assets for the year during a meeting held in Miami, as part of the presentation of the partnership between Invesco and LarrainVial.
Jackson expects 2026 to be “just as good” as 2025 and believes that the strong market performance this year will be driven, first, by the continued easing of monetary policy by several central banks, including the Federal Reserve, for which he forecasts between two and three interest rate cuts in 2026. According to Jackson, the Bank of England will follow a similar path. This easing, “after a couple of years of very aggressive rate cuts by almost all central banks around the world,” has led to an acceleration in money supply and “normally this is associated with stronger economic growth and perhaps higher inflation over the long term.”
There are exceptions to this scenario. Here Jackson points to the Bank of Japan, which will raise rates for some time. He also mentions Australia, following its recent rate hike. However, this will not prevent a boost to global economic growth.
Another factor that will accelerate economies is the increase in real wages across most regions, which “should boost consumer spending,” especially in areas such as Europe, where savings rates are “unusually high.” In the United States, that momentum will come from wage inflation exceeding price inflation.
Third, economic growth will also be supported by selective fiscal stimulus. Jackson mentions the expected increase in military spending in many European countries, alongside Germany’s “significant” infrastructure spending program. He also points to Sweden which, given its proximity to Russia, “feels the need to increase military spending.” Japan is an “interesting” case for Jackson, as Prime Minister Sanei Takeuchi is “very interested” in increasing fiscal stimulus in Japan.
Asset Allocation for the Year
Jackson notes that, in general, stronger economic growth benefits cyclical assets such as industrial commodities and equities, as well as higher-risk assets overall. However, he sees factors that could prove destabilizing.
The main one is the U.S. midterm elections, which “usually trigger a shift against the president’s party.” The consensus view is that Democrats will win the House of Representatives, but not the Senate, although Jackson has the “slight suspicion” that Democrats could win both chambers. “It will be difficult, because they need to gain four seats from the 22 Republican seats up for election, but I suspect they could achieve it.”
He also sees few opportunities in duration. Jackson points to the numbers: short-duration assets still offer low yields, while longer-duration assets—such as government bonds, investment-grade and high-yield bonds, as well as equities and real estate—offer returns similar to or even below historical averages.
For example, he expects the yield on the 10-year U.S. Treasury to rise to at least 4.3% by the end of the year. “That’s why when I think about government bonds, investment grade and high yield, my stance is, at best, neutral, with a bias toward underweight.” Jackson prefers assets such as leveraged loans and believes AAA-rated CLOs “are a cash-like asset, but enhanced,” while generating the same return as high-yield bonds “but with much lower volatility.”
Regarding equity markets, he holds a very underweight position in the U.S. market, as he considers it “too expensive.” One alternative would be “to buy a nuclear-energy-weighted index, or focus on the banking sector.”
Jackson acknowledges that several Latin American markets offer value, although within global equities he particularly highlights China, which remains “cheaper than usual” relative to its historical average and “much cheaper” than the United States. His conviction is strong: “I have maximum exposure to Chinese equities,” he said. In fact, he is overweight emerging markets, Europe, Japan, and the United Kingdom, which offer “interesting returns.”
He is also interested in industrial metals—copper, aluminum, lead, etc.—because they are sensitive to the economic cycle. Even energy appeals to him, “where valuations are more reasonable,” and which should benefit from his scenario of an expansionary economic cycle.
In currencies, he highlights the Japanese yen, which he believes “is very cheap.” The Bank of Japan “needs to raise rates,” and as long as it continues to do so while the Fed eases monetary policy, “the yen will strengthen considerably.” As a complement, in Japan it is now possible “to obtain yields above 3.5% on 30- or 40-year bonds in a very cheap currency.”
Risks to Watch
Jackson believes it is always important to consider what could go wrong. The first obvious risk is being wrong about the economic cycle—namely a slowdown or mild recession. In that case, defensive instruments would be needed: “Bank loans and CLOs would work, but government bonds would also be very good.”
The second risk would be a rebound in inflation, which “is no longer declining steadily around the world.” He acknowledges that many investors believe gold could be useful in those circumstances, although it does not always work as such.
The third risk would be the implications of Kevin Walsh being appointed chair of the Federal Reserve. “Walsh’s track record is not that moderate,” Jackson notes, recalling that recent statements by the new Fed chair contain elements suggesting the Federal Reserve could be more restrictive than Donald Trump would like. “We could face some unpleasant surprises,” he said.
Fourth is the concentration of the U.S. equity market, although Jackson clarifies that he sees this factor as “a risk not only for the U.S. market but also for global equity markets.”
The fifth risk he highlights is a resurgence of debt problems. “If governments do not do the right thing, we will probably end up talking about the return of the gold standard, and then we could become very optimistic about gold. My gold standard calculation suggests gold should be at $9,300,” the expert predicted. Strategically, he concludes, over time “we will end up having fewer and fewer government bonds in our portfolios because we will consider them increasingly risky assets.”
Aristotle’s List of 10 Surprises for 2026
Jackson also used the Miami event to present his “Aristotle List,” a compilation of ten major surprises for the year inspired by the list Byron Wee used to publish at Morgan Stanley. In a relaxed setting, the expert shared ideas that diverge from market consensus and that, if confirmed, could deliver strong gains for investors.
The first prediction refers to Democrats controlling both chambers of Congress after the midterm elections. Next comes the possibility that the Russell 3000 index will outperform the group of the Magnificent Seven. The podium is completed by the prediction that the yen will appreciate to 140 yen per dollar, from more than 150 currently.
The list also includes the expectation that the yield on the 30-year UK government bond will end the year below its U.S. counterpart, and that Argentine bonds will outperform global indices. In addition, European CO₂ allowances could surge above $100, compared with around $70 currently.
He also expressed confidence that the Kenya stock market will perform well for a third consecutive year. “It’s a small market and I doubt anyone has analyzed it,” Jackson said. Each year he tries to highlight a frontier market “where valuations are really attractive and fundamentals remain good. And I think Kenya is the ideal candidate.”
He also predicts that gold could fall below $3,500. “Gold is expensive. It is trading between five and six standard deviations above its historical real value. Everyone loves a rising asset, but I have the slight suspicion that it won’t last the whole year,” he concluded.
Outside the economic sphere, Jackson sees it as likely that UK Prime Minister Keir Starmer will still be in office by the end of 2026. Finally, his sporting prediction—after correctly forecasting last year that Europe would beat the United States in the Ryder Cup—is that Spain and England will play in the final of the FIFA World Cup hosted by the United States, Mexico, and Panama. England will reach the final after defeating Argentina in the semifinals, but Jackson’s prediction is that Spain will lift the trophy.
Jackson’s final message to attendees at the event was an invitation to be happy: “Academic studies show that being kind to others makes you feel better. So don’t be selfish, and don’t trust anyone who is addicted,” he said.
