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19h ago

Markets Extend 2025 Rally Into 2026 as Warnings Rise Over a Diversification Mirage

Analysts caution that portfolios could be vulnerable if inflation reaccelerates, especially from higher energy costs.

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A trader works on the floor of the New York Stock Exchange (NYSE) in New York, US, on Friday, Jan. 2, 2026. The S&P 500 Index retreated from early Friday gains as worries about stretched valuations offset optimism about next week’s massive CES conference and signs President Donald Trump was easing up on tariff policies.
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Overview

  • Global stocks opened 2026 higher, with optimism around artificial intelligence, easing inflation and supportive central banks carrying over from last year.
  • Measured across equities, bonds, credit and commodities, 2025 delivered the strongest cross-asset performance since 2009 as stocks and bonds advanced together, credit spreads tightened and commodities gained.
  • US equities returned about 18% in 2025, global stocks roughly 23% and global Treasuries nearly 7% as the Federal Reserve cut rates three times.
  • BlackRock’s Jean Boivin warned of a “diversification mirage,” noting that when traditional offsets rise in tandem, the margin for error narrows even as valuations climb.
  • Fresh caution accompanied the new year as Fed minutes signaled policy divisions and potentially fewer 2026 cuts, while investors flagged energy-driven inflation risks and a disconnect between surging billionaire wealth and weakening US consumer confidence.