After a tumultuous 2025, Prime Financial has cautioned inflation and a long-term mindset should be the top priority for the year ahead.
Last year saw markets face considerable volatility, due in part to the US Liberation Day tariffs announcement in April, sticky inflation, AI bubble fears and higher interest in defensive stocks.
Looking forward, the firm is expecting geopolitical events and inflation to continue shaping markets in 2026.
Namely, Prime pointed to the ongoing inflation issue that saw many Australians hopes dashed as October’s monthly Consumer Price Index (CPI) data showed a 2.1 per cent uptick in the 12 months to October 2024, according to the ABS, which saw a number of economists suggest the possibility of a rate hike in December.
While the RBA held the cash rate at 3.6 per cent during its final monetary policy meeting for the year, the high inflation issue has put the possibility of a rate increase on the cards for 2026.
Even so, Prime suggested that any easing of inflation “may be short-lived, setting the stage for renewed policy support and inflation pressures”.
The firm added: “This supports maintaining exposure to real assets, infrastructure, and companies with the ability to raise prices.”
With so much uncertainty about the future of markets and the overall economy at this time, Prime said it is key that investors’ portfolios are diversified to withstand a range of potential outcomes that may result from inflationary shifts.
On top of that, the firm suggested that keeping some cash on hand could be beneficial in allowing investors to seize opportunities when they arise and avoid being locked out due to illiquidity.
Looking to the US, the first year of the Trump Administration’s second term would suggest that further market impacts may occur this year.
With this in mind, Prime said the administration’s control of the Treasury and “likely influence over the Fed by mid-2026″ could see increased government spending as it looks to boost its economy, suggesting this could have flow on effects to global markets.
Taking lessons from the last 12 months, the firm said that staying “humble, diversified and focused on the long term” continues to be the most reliable path forward when markets experience a rally, even as growth continues long past what seems possible.
Prime added: “As we head into 2026, the challenge is to stay invested while also keeping some flexibility for future opportunities. The risk of a market setback has increased, but trying to exit too early has proven costly, as markets often continued rising longer than expected.”
