AXIOMA ROOF™ SCORE HIGHLIGHTS

• Geopolitics: Securing the Western Hemisphere, Ukraine, Iran, and China.
• Politics: US - SCOTUS decisions on tariffs, Trump v Cook, and the Midterms. EU – Hungarian elections and the continued rise of the far right over traditional parties.
• Macroeconomics: Fed independence, inflation, and tariffs. Fiscal debt, private credit, and AI bubbles.
• Others: Expect heightened geopolitical risk premiums, increased volatility in energy and commodity markets, and a stronger bid for safe-haven assets as uncertainty escalates.

2025 was arguably the most geopolitically consequential year since the fall of the Berlin Wall in 1989. Yet, it now feels like it may have been only a dress rehearsal for what is coming in 2026. Despite the Trump administration’s sweeping ‘America First’ agenda - promising peace in Ukraine and the Middle East, reclaiming the Panama Canal, acquiring Greenland, making Canada the 51st state, ending Iran’s nuclear program, and rebalancing trade with China - most of these ambitions remain unrealized. Their unfinished business will weigh heavily on markets and investor sentiment throughout 2026.

According to the new National Security Strategy (NSS), the top U.S. priority is to “deny non-Hemispheric competitors the ability to position forces or other threatening capabilities, or to own or control strategically vital assets, in our Hemisphere.” This would be a reversal of the past 15 years which saw China becoming the region’s biggest trading partner and investor as US interest focused elsewhere. And as this past weekend’s extraordinarily successful ‘strike-and-grab’ operations in Venezuela demonstrate, Trump appears determined to deliver on his geopolitical promises - whatever the cost or legality. Strongmen of the Eastern Hemisphere, take note.

Ukraine: Peacemaking is not for everyone - it takes patience and grit, but no background checks. The prospect of a 60-days ceasefire promises to be the shriveled cherry atop this melted sundae of a peace plan - the one the Trump administration has been force-feeding Zelensky for the past eleven months. Investor confidence in a Ukraine–Putin peace deal is evaporating after Trump’s sixth meeting with Zelensky - following a Trump-Putin call the night before - ended without a breakthrough. Zelensky continued to praise the effort but there was something in his voice - something about the way he said, "I thank President Trump and his team for the negotiations". It was the tone a man uses when he tells his friends his wife is working late, even though he’s known for a year that she’s having an affair with her boss.

US-China: Globalization started with investors landing in Beijing and seeing a sign that says: “Welcome to Communist China – the home of the Whopper.” Today, they’re watching the Superbowl being played with balls made by Wilson - owned by ANTA China, and BYD has replaced Tesla as the undisputed global king of EVs. Last year taught investors that the world economy isn’t ready for a hard break with China, and that decoupling went about as far as it could possibly go when things got about as bad as they could reasonably get. For now, China calls the shot in global trade, especially ahead of the US midterm elections. What will this new influence mean for Taiwan?

US-Europe: Europe, meanwhile, faces major challenges in 2026. Key European leaders - Macron, Starmer, and Merz - are grappling with record-low approval ratings and mounting pressure from far-right parties, now openly backed by the Trump administration. European leaders have been told that ‘America First’ now means ‘Europe Alone’. The underlying message is not abandonment, but an expectation for Europe to adopt U.S.-style policies: close borders, defend national culture, foster innovation, and support patriotic parties. The NSS argues that if Europe follows this path, the U.S. will remain a committed partner.

Debt Bubble: The US Government will face an estimated trillion-dollar interest payment on its debt in 2026, up from $345 billion at the start of 2020 - the U.S. owes its lenders about $38.4 trillion. This in turn has created the need for the Trump administration to bend monetary policy to fit its fiscal constraint. By remaining data-driven, the Fed acted as an island of predictability in the ocean of uncertainty that is the Trump 2.0 administration. The credibility of the Fed’s independence will be one of the first risk events for markets in 2026. 

AI Bubble: Among the riots of moods and impulses elbowing for room at the forefront of investors’ emotional queue in 2025, giving up on AI remained somewhere near the back. Despite all the talk about bubbles, investors who have poured into AI stocks are unlikely to sell out now - either out of continued faith or because abandoning ship would feel like wasting everything they’ve already committed, the way you don’t put aside a bad book halfway through; you finish it reluctantly, hoping the ending makes up for some of it.

The AI bubble could burst, but surely markets would play that one fair, now that so many investors are deeply entrenched. Otherwise, what was the point? Which begs the question: What if markets didn’t play fair? What if they didn’t care whether investors learned their previous lessons or not?

Private Credit bubble: When Benjamin Graham wrote the book on the valuation of securities in public markets, the math behind it had been the same for decades. And for a century after that. Then came private markets and the math there left the real world behind, just like modern art, really. The math in public markets is classical, the math in private markets is suddenly Picasso - it cannot prove valuations to be true, it can only not prove them to be false.

For speculators, a door like this has cracked open only five or six times since we got up on our hind legs – the last time was with the subprime products. It’s the best possible time to launch new math, when most investors believe that almost everything they thought they knew is wrong. The future is disorder and new math is here to explain it.

But the world of private credit might be facing some stress. US private credit defaults jumped to 5.7% in November from 5.2% in October on a trailing 12-month basis, according to Fitch Ratings. For a subset of 300 privately issued loans rated by Fitch, the rate surged to 9.3% from 7.7%. The CEO of one of the biggest player in this asset class, Apollo, has switched into de-risking more, stockpiling cash in preparation for “when ‘something bad happens" - Note that he said "when", not "if".

2026 Prediction: A lesson in folly is worth two in wisdom the saying goes. The biggest loser from the trade war so far has been the USD. That should continue into 2026. After a year like 2025, investors have lost all capacity for disbelief. I’m not sure that they could even rise to a little gentle skepticism. 2026 will not be smooth sailing. It will put investors through thunderstorms, desert storms, hailstorms, and even several shit storms. So, prepare yourself. Be ready not to be ready. Be ready for your investment thesis to be invalidated and your forecasts to be beaten to dust. Because no predictions, no matter how well-informed, will save you from this fact: markets are unpredictable.

Investor Action Plan: Investors must urgently model geopolitical risk scenarios and apply the Four As of Risk Management:

• Ask: “If this happens—where is our portfolio? If that happens—where is our portfolio?”
• Adapt: Build optimal portfolios for each scenario.
• Act: Rebalance your current portfolio to stay within a safe distance (tracking error and turnover) from these scenario-based optimal portfolios.
• Ask Again: With new information, has the scenario changed? Has the probability shifted? If so, adapt and act accordingly.