A year of surprises
If markets have taught investors anything in recent years, it is to expect the unexpected. Looking ahead, 2026 is already shaping up as another year defined by surprise - political, economic and investment-related. Short-term resets, sudden rotations and bouts of volatility look set to remain a feature of markets, rather than an exception.
It increasingly feels as though investors are navigating a continuous and somewhat random rotation of market stresses and sell-offs. Regional US banks, long-duration bonds, China equities, renewables, electric vehicles, AI losers, precious metals and, more recently, AI winners have each experienced periods of intense investor enthusiasm followed by sharp drawdowns in rapid succession. In many cases, these moves have resembled bubble formations followed quickly by corrections, unfolding in an almost unprecedented fast-follow fashion.
For investors, this list may trigger memories of where conviction once sat, and how, with the benefit of hindsight, those views have or have not been validated. What is striking is not just the number of drawdowns, but how isolated they have often been, allowing broader equity markets to rotate leadership and continue grinding higher. This has helped index-based investing as well as any active managers who have correctly timed their rotations.
While many investors have delivered strong returns through the bullish phase of this cycle, the conversation is now shifting. Attention is turning from participation to protection. The current sell-off in mega-cap technology and AI-related names is no longer confined to a narrow cohort, with weakness beginning to spread into wider parts of the market.
Markets are not only questioning the pace and monetisation of AI capital expenditure but are also beginning to price in the disruptive consequences of that investment. As AI capabilities expand, competitive pressure across the broader technology and software landscape is intensifying and equity markets are responding accordingly. Since the beginning of December, FANG stocks have decoupled from the broader US equity market, declining by more than 11% by early February, while the S&P 500 has remained in positive territory over the same period. In fact, investors in FANG stocks over the past six months have experienced a net negative return, at a time when the potential disruption from their products and services appears almost unlimited.
In an environment defined by heightened uncertainty, the role of diversification becomes increasingly important. Rather than attempting to predict the next surprise or time each rotation, we believe a more reliable approach is to construct portfolios capable of absorbing shocks, balancing long-term growth opportunities with assets that provide resilience when markets move quickly.
January served as a timely reminder that while markets may trend higher over time, the journey is rarely smooth. In a world of rolling drawdowns and rapid regime shifts, resilience, not prediction, may prove to be the more enduring advantage.
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