Understanding market drivers in 2026: Insights from Jurrien Timmer - January 5, 2026

Oil and the commodity landscape

Oil continues to play a significant role within the broader commodity complex, even as prices remain steady around $58 per barrel. Recent developments in Venezuela, a country with some of the world’s largest oil reserves, have introduced new questions about future supply. If foreign operators eventually gain access to those reserves, global oil production could increase, which would limit the potential for higher prices. While this scenario might support economic activity through cheaper energy, it also reduces the chance of a strongly bullish oil environment. Despite this, Jurrien noted that commodities remain an important uncorrelated asset class within diversified portfolios.

A market driven by earnings, not multiples

One of the most notable shifts heading into 2026 is the change from valuation driven gains to earnings powered growth. Since the market bottom in October 2022, returns have climbed nearly 100 percent, but the source of those gains has evolved. The rally initially benefited from price to earnings expansion, but in 2025 strong earnings growth became the primary driver. This reflects broad corporate strength, supported by fiscal stimulus and significant capital spending, particularly in areas connected to AI. The five-year U.S. earnings compound annual growth rate now sits around 14 percent, which is near the upper end of its historical range. Although this represents a high bar for continued acceleration, it does not signal instability. Key fundamentals such as payout ratios, interest rates and the equity risk premium remain supportive.

Global equities show renewed strength

International equities, especially in Europe and Japan, played a major role in the broad rally of 2025. Many of these markets outperformed U.S. equities in both local currency and U.S. dollar terms. A particularly important technical milestone is the breakout of the MSCI EAFE Index above a 15-year resistance line, which indicates renewed momentum. Beyond technical strength, global markets offer attractive fundamentals. Several developed markets now exhibit faster payout growth than the U.S., with countries such as Japan, India and Canada showing notable increases in dividends and buybacks. With EAFE and emerging markets trading at valuation discounts, typically around 15 to 16 times earnings versus about 25 times in the U.S., Jurrien highlighted a opportunity to diversify internationally and manage rising concentration risks.

The U.S. dollar, trade tensions and reserve shifts

Even with heightened trade tensions during parts of 2025, foreign investors have not stepped back from U.S. assets. Equity flows remain positive, supported by global interest in AI and the leadership of U.S. mega cap companies. Bond flows have also held steady, apart from the long-term reduction in Treasury holdings by China’s central bank. This trend could be strategic rather than a reaction to recent policy developments. As a result, the U.S. dollar has been stable over the past six to nine months and remains one of the strongest global currencies. At the same time, central banks have been increasing their gold reserves, pushing the value of gold holdings above the euro when measured at national valuations. This reflects a gradual diversification across reserve assets rather than a challenge to dollar leadership.

Navigating concentration risk through global diversification

The concentration of the U.S. market, with the MAG7 representing 30 to 40 percent of the S&P 500, remains a central consideration. Rather than recommending a shift away from these companies through equal weight indices, style tilts or smaller cap exposure, Jurrien emphasized a more global approach. A barbell strategy that combines S&P 500 cap weighted exposure with international equities, particularly EAFE markets, allows for participation in U.S. growth leadership while also benefiting from valuation advantages and improving payout practices abroad. This approach helps manage concentration risk without positioning against the primary engine that has driven market returns for more than a decade.

Conclusion: Positioning for a global and earnings focused 2026