The one tension
Every US allocation call in 2026 reduces to one tension: the economy is strong enough to justify owning risk, and the rate and fiscal backdrop is hostile enough to cap how much you pay for it. Above-trend growth, an AI-driven capex super-cycle and resilient earnings argue for equities; a hawkish Fed, sticky 2.7-percent inflation, a rebuilt term premium and a 6-percent deficit argue for discipline on valuation and caution on duration. The resolution is not to choose a side but to own the growth where it is cheap relative to its durability and to refuse to pay up for rate-sensitive duration.
Equities: own the engine, mind the multiple
US equities remain the core long in any global portfolio because the earnings engine - technology, AI infrastructure, and the broad productivity that capex enables - has no equal among developed markets. But the index is expensive and concentrated, and a higher-for-longer discount rate is a headwind to the multiple. The stance is a selective overweight: own the AI capex and productivity beneficiaries and the cash-generative quality compounders, be disciplined on the most rate-sensitive and speculative long-duration equity, and recognise that breadth - the participation of the median stock - matters more in a high-rate regime than in the easy-money years.
The mistake in US equities for 2026 is to treat a strong economy as a reason to pay any price. The economy supports owning the asset class; the rate regime demands paying a sober multiple for it. Own the engine, but underwrite it at a discount rate that assumes the Fed is a hiker, not a cutter.
Rates, dollar and the barbell
In rates the call is clear: favour the front end and high-quality carry over long nominal Treasuries. With the Fed on hold near 3.5 percent and possibly hiking, T-bills and the short end offer attractive risk-free carry, while the long bond carries the supply, term-premium and inflation risk catalogued in our fiscal note - it is a source of risk, not the portfolio's ballast. Inflation-protected securities are preferable to nominals for the duration you do hold. The dollar stays firm on the hawkish Fed, which argues for keeping unhedged dollar exposure and for caution on the emerging-market and rate-sensitive assets that suffer when the dollar is bid.
| Asset | Stance | Expression |
|---|---|---|
| US equities | Selective overweight | AI capex, quality compounders |
| Speculative duration equity | Underweight | Rate-sensitive, expensive |
| Front-end / T-bills | Overweight | Risk-free carry |
| Long Treasuries | Underweight | Supply + term premium |
| TIPS | Preferred vs nominal | Sticky inflation hedge |
| Dollar | Long / unhedged | Hawkish Fed support |
The allocation in three states
Our posture is constructive on US growth assets, disciplined on valuation and defensive on duration, sized for the sticky-inflation base case. The signals that would move it: a clear labour-market slowdown would shift the call toward duration and defensives as the Fed turns dovish; an inflation re-acceleration or a disorderly term-premium repricing would argue for cutting duration further and raising the quality and real-asset weighting; and a broadening of equity participation would justify adding cyclical breadth. Until then, own the engine, take the front-end carry, and treat the long bond with the caution the deficit deserves.