In an age of relentless market noise, true investment foresight demands discipline, depth, and collaboration. At Julius Baer, we anchor our long-term strategy in one foundational exercise — the annual Secular Outlook. Far more than a forecast, it is a rigorous synthesis of ideas drawn from across our global investment platform. Led by Group Chief Investment Officer Yves Bonzon, the process brings together strategists, economists, asset class experts, and regional specialists — enriched by external insights and ongoing client engagement — to identify the structural forces shaping the decade:
The Secular Outlook is not about predicting the next rally. It’s about recognising the silent shifts in technology, policy, capital flows, and global power that are set to redefine returns over the next 5 to 10 years.
Macroeconomic trends shaping the current decade
Trend 1: In the new investment paradigm, global diversification becomes a necessity, not an option
Global fragmentation has intensified as national interests surpass global alliances – a stark contrast to the post-Cold war ‘peace dividend’ era, which began in the early 1990s and largely ended with the Ukraine war in 2022. Over the past three decades, the world has shifted from unipolarity under US dominance to an increasingly multipolar order, a trend accelerated by the US tariff campaign, launched in April 2025 by the new Trump administration on a day termed ‘Liberation Day’ by the President. Rather than deglobalisation, however, strategic reshoring appears to be the likely outcome.
Indeed, the aftermath of Liberation Day makes several things clear. First, trade wars do not work in a multipolar world - Chinese exports quickly shifted from the US to Asia and Africa, and oil markets barely reacted to punitive tariffs and sanctions. Second, global supply chains are too intertwined, complex, and mutually profitable for countries to fully rebalance their operations, with exceptions limited to sectors deemed critical to national security, such as information technology or energy.
For investors, these dynamics underscore that political and geopolitical forces will increasingly overshadow endogenous market signals, resulting in increased macroeconomic and financial market volatility. This reinforces the case for global portfolio diversification, guided by secular trends and their influence on major investable economies.
Trend 2: The consequence of geopolitical rivalry is fiscal activism
Supercharged by two major external shocks, the Covid-19 pandemic and the war in Ukraine, fiscal policy took centre stage in the early 2020s when it comes to managing economic cycles. Active industrial and fiscal policies are now core to state-sponsored capitalism, marking a significant paradigm shift from the neoliberal era where fiscal stimulus was used only to smooth out economic downturns. While the US has been prominent in enacting large government programs since 2021, the most significant fiscal policy shift in 2025 occurred in Europe.
The continent has abandoned its dogmatic commitment to fiscal austerity in favour of massive fiscal spending at achieving greater energy and military security independence. Germany’s historic fiscal and defence U-turn, aimed at modernising the country’s ailing infrastructure and restoring its defence capabilities, could prove to be a turning point. Another major political commitment arose from the 2025 North Atlantic Treaty Organization (NATO) summit, where member nations committed to a new defence spending target amounting to 5% of GDP by 2035, which is more than double the previous 2% guideline.
The US is not sitting on the sidelines either. The government has recently begun acquiring minority stakes in domestic companies that produce goods deemed relevant to national security. By now, US fiscal stimulus appears to have become permanently procyclical.
Trend 3: Fiscal dominance will exert a strong influence on interest rates
In 2022, confronted with an inflation spike for the first time in decades, Western central banks have rapidly reset the cost of capital in the system. In the current context of fiscal dominance, debt sustainability considerations are increasingly feeding into the ‘neutral’ interest rate equation. Following years of ultra-low levels or even negative interest rates after the Global Financial Crisis (GFC), the sharp tightening though 2022 and 2023 marked a return to the mean for both US federal funds rate and the 10-year US Treasury yield. In hindsight, the last decade was a truly experimental period for monetary policy.
While private sector strength has supported resilience to a normalised cost-of-capital environment, structural forces that drove decades of interest rate decline – ageing demographics, digital disruption, and extreme financialisation – remain deeply entrenched, exerting disinflationary pressure in developed economies. At the same time, record government debt and a rising interest burden – with global debt (public and private) amounting to just above 235% of global GDP last year – are putting pressure on monetary policy authorities globally. Ultimately, interest rates and inflation are political choices. Nowadays, monetary authorities can access an extended policy toolbox, enabling them to actively target longer-term rates if needed, i.e. through yield-curve control or a rebranded form of quantitative easing.
Trend 4: The innovation super cycle will create winners and losers
What distinguishes the current super cycle conjuncture is its pace and breadth. Beneath the surface, we see a convergence of multiple technologies leading to severely disruptive forces; artificial intelligence (AI), the energy transition, and advances in life sciences, among others.
AI remains the fulcrum of market narratives and corporate investment, as AI hyperscalers have led US equity markets to new highs and have committed gigantic sums to AI infrastructure, with power and grid capacity emerging as binding constraints. While AI’s disruptive potential may surpass that of the internet, its payoff is anything but straightforward. Generative AI tools are everywhere, yet widespread adoption does not guarantee business transformation or bottom-line impact.
Trend 5: China – engineering a sustainable equity bull market
We continue to see broad evidence that China is still in a balance sheet recession, a pattern that usually emerges after the collapse of an asset bubble, which in China’s case was triggered by the bursting of the real estate bubble in 2021. The fallout left households with significant unrealised losses, depressing consumer confidence, and driving savings rates above 30%. At the core of the Chinese balance sheet recession is a private sector prioritising debt minimisation over profit maximisation despite low or zero interest rates, which would normally encourage new borrowing.
Recent evidence suggests Chinese policymakers now recognise that one of the most effective ways to reflate household balance sheets damaged by the prolonged downturn in the real estate sector is to engineer a managed and sustainable equity bull market. Incentives for listed companies to return cash to shareholders and efforts to institutionalise equity investments equity aim to shift savings into equities, restore confidence, and boost consumption. To support this transition, the government is likely to prioritise the consumption of services over goods, accelerating the rebalancing of the economy towards domestic demand, with untapped potential in healthcare, finance, and leisure.
Beyond policy, China’s structural strengths stand out: growing self-sufficiency, resilient exports despite US tariffs, leadership in electrification, and its progress on the AI front, highlighted by DeepSeek’s release in 2025. With power and grid capacity now the main bottleneck for scaling AI, China is responding with rapid expansion of electricity generation and storage, securing a massive energy cost advantage that reinforces its long-term competitiveness.
Frequently asked questions
1. What are the key macroeconomic trends investors should monitor in 2026 and beyond?
Investors should focus on five transformative trends shaping the global economy:
- Geopolitical fragmentation and the shift to a multipolar world, making global diversification essential;
- Fiscal activism, as governments prioritise strategic investment over austerity, favouring expansive policy shifts;
- Fiscal dominance drives interest rates and inflation as debt, politics, and entrenched disinflationary forces constrain policy choices;
- The accelerating innovation supercycle in AI, clean energy, and biotech, creating new winners and disrupting incumbents; and
- China’s economic rebalancing, as policymakers strive to engineer a sustainable equity bull market to revive growth and household confidence.
Understanding these forces is critical for building resilient, forward-looking portfolios in a rapidly changing world.
2. Is China heading for a stock market rebound, and what could drive it?
The groundwork is being laid for a first structural equity bull market in Chinese equities. China is looking to counteract its ongoing balance sheet recession — triggered by the collapse of the property sector in 2021. With households hoarding cash and avoiding spending, Beijing is incentivising companies to reward shareholders and encouraging investment in domestic equities. Supported by structural strengths in AI (e.g., DeepSeek), electrification, and export resilience, this policy shift aims to rebuild wealth, restore confidence, and pivot the economy toward stronger domestic consumption.
3. Is the government spending frenzy here to last — and what does it mean for investors?
Yes. Fuelled by geopolitical risks and security needs, fiscal activism has become structural — not just cyclical. Europe’s abandoned austerity, Germany’s defence and infrastructure push, and NATO’s 2035 defence spending target (5% of GDP) signal a lasting shift. With fiscal dominance now entrenched, governments will keep shaping markets and funding strategic industries. Investors must adapt: expect higher deficits, currency pressures, and new opportunities aligned with national priorities.
4. Is it the end of US exceptionalism?
Not quite. Global markets were rattled as confidence in the future of US institutions fell following Liberation Day. Thus far, the fallout has been largely confined to the USD, while the US market – propelled by its technology sector and the AI boom – continues to lead. However, the AI capex cycle is currently the sole driver of both the US economy and its markets. US exceptionalism now hinges on the ability of US hyperscalers to monetise their ever-increasing investments, a focal point for asset allocators in the second half of this decade.