Van Eck's Q1 2026 Market Outlook: Risk On, Baby! | Jan van Eck

Number one, we have a lot of clarity around interest rates and the Federal Reserve that came out of a talk that Scott Bessant gave. The fear out there is that we are selecting a new Fed chair as we do every four years in May of 2026 and that Donald Trump is exerting too much control over the Fed. We'll talk about that. Secondly, the AI bubble. We're in a bubble. We heard that so much at the end of last year. I hope to show you that the bubble has popped and it's time to reload your AI allocations. Private credit also had a very tough end of 2025. The famous Wall Street CEO said there was a cockroach in the private credit markets. I think those fears are overdone but well priced and again an opportunity.

Great to see you. Happy New Year.

It was restful. Thank you.

Visibility, I guess, which means risk on. That's the title. So maybe I should just say risk on if you want one phrase.

Before I get into it, if you haven't heard this quarterly outlook before, as Adam mentioned, I am CEO but I also sit on VanEck's investment committee. What we try to do in these quarterly outlooks is emphasize what might be missing if you're just tuning into a lot of the financial noise that comes out of the markets. I try to pick charts that maybe you haven't seen before or are a little bit more interesting and relevant. Our perspective is very much that the financial markets sit within a world that is changing very quickly because of political events, economic changes, or technology. Those forces can pull the market in ways you might not fully appreciate if you just stare at market prices themselves. That's our perspective. If you want to say there's an inefficiency we try to take advantage of, it's having a longer time perspective. Changes can happen very quickly but sometimes you can feel more conviction about something that's going to happen in 2030 or 2035 than what everyone else is trying to do in 2026.

Thank you. So starting off, besides the fact that we try to make these charts interesting, our perspective is very much that the financial markets sit within a world that is changing very quickly because of political events, economic changes, or technology. So we think those forces can pull the market in ways you might not fully appreciate if you just stare at market prices themselves. That's our perspective. If you want to say there's an inefficiency we try to take advantage of, it's having a longer time perspective. Changes can happen very quickly but sometimes you can feel more conviction about something that's going to happen in 2030 or 2035 than what everyone else is trying to do in 2026.

From the perspective of 2035, there are these big magnets pulling at the financial markets: one is this huge fiscal deficit that was worst ever in peacetime. How do we stand relative to that? Again, to my theme of the day, we have greater visibility and a better situation. So we'll get into that. Artificial intelligence, the token demand that's out there, we spent a lot of time talking about it last quarter, continues to be extremely strong as reflected in the Mag 7 earnings. India is still growing. I won't spend a lot of time on that. And we had a lot of financial innovation last year. What does that mean coming into today? Number one, we have a lot of clarity around interest rates and the Federal Reserve that came out of a talk that Scott Bessant gave. The fear out there is that we are selecting a new Fed chair as we do every four years in May of 2026 and that Donald Trump is exerting too much control over the Fed. We'll talk about that. Secondly, the AI bubble. We're in a bubble. We heard that so much at the end of last year. I hope to show you that the bubble has popped and it's time to reload your AI allocations. Private credit also had a very tough end of 2025. The famous Wall Street CEO said there was a cockroach in the private credit markets. I think those fears are overdone but well priced and again an opportunity. I asked the question, investors say did I miss gold? The reason for an action is a very simple yes. I feel like I missed gold. We'll talk about that and then a little bit about what else to buy at the end. I love to pick on stuff that's so hated and feared and where we see opportunity.

Great point. He's at the table defining this. Importantly, the Fed chair nominee from the Trump administration needs to be approved by the Senate. I really feel like he was speaking to the Senate here, Adam, trying to lay the groundwork. My basic point is he's doing such a good job that this will be smooth. People are worried about Fed independence. I don't think that's what's going to end up happening. They'll pick a nominee, the Senate will approve. The second point here, probably surprising if you listen to Donald Trump last year, is Scott Bessent said that interest rates are at normal levels. He didn't nuance it short-term versus long-term, but that is such a sales pitch to people afraid they're going to cut short-term rates from 3% to 1% like Trump might say. The market's expectations of 25 to 50 basis points at the short term seem very reasonable. I would be surprised to be surprised here by monetary or fiscal policy. He also talks about housing explicitly as something pumped up by the Fed. Asset price inflation, stock prices being up, those are the enemy and the Fed should not be in the business of pumping up asset prices. And lastly, if inflation gets below 2%, he basically said we shouldn't have an inflation target anymore of 2%. He said make it a range. The markets are way too complicated, it's much more like biology than math. We should not be surprised if inflation continues to trend down that the Fed will change this philosophy. I feel like really clear monetary policy, not a big change, no surprises. Maybe they cut a little bit. It's basically what happened last year, it just felt much more dramatic.

Of course. Let's go.

No, he made it very clear he liked the central banks that got involved post-COVID but he specifically mentioned he liked them to be involved for two or three months, not two or three years. So still swift action but just less of the action.

We'll get there.

You know, to highlight, it's a different chart. Our US budget deficit versus Germany. This is how much the government is spending relative to GDP. It should be no more than 3%. We got to over 10% in COVID. This is what Bessent's talking about. Even a couple of years later, our fiscal deficit was way worse. I've updated my little Jan math for the federal budget deficit and I disagree with what other people are saying. We are now in fiscal 2026 and I'm predicting 5.5% or less. I can't tell you how many Wall Street economists agree with this, but we snuck in last year's fiscal deficit below 6% which no one was predicting. We'll see. This is controversial but I think this sets the floor for a calmer monetary policy as well.

Yeah, this is his sales pitch for sure. So far the numbers have tracked. If I maybe highlight one thing, GDP was at 4% in the third quarter. That was a big surprise. One of the things Bessent said is Wall Street is getting this wrong. I haven't seen one Wall Street prediction of growth above much above 2% for next year. He's saying you guys are an order of magnitude wrong. The reason I bring this up here is that if GDP is higher, then the percent of GDP number will be even lower. I kind of cheated and made GDP growth for next year at 4%. That's why we're at 5.3% budget deficit. The main point is we're trending the right way. From what we know now, we can talk about tariffs later. I know there's risks.

I didn't change them. Bessent talked about tariffs and he said he was at that Supreme Court hearing and we shouldn't think of the outcome as 100% approval of Trump tariffs or 0% rejection. It's going to be somewhere in there. I would be surprised if the court were to really change the revenue figures here.

There's always risks to my outlook. Let me talk about the report card for fiscal. Short-term interest rates are set by the Fed, but long-term interest rates are what the market is looking at. I think we're in a troubled world actually, but the US did okay. The US 10-year interest rates showed a better fiscal situation. The fact that 10-year rates went from 4.8% down to 4% last year reflected this better fiscal situation. In contrast, other developed markets like Japan and the UK are having quasi mini crises. Japan's 30-year interest rates are in green at the bottom. Interest rates going up is not good when you have a lot of debt.

Yeah, they tried to control interest rates, getting into a vicious cycle you can't get out of. That's really what I was worried about. It's the biggest risk to the markets from government spending and deficits this time around, not households or corporations. That's why I think we have visibility and a good outlook. This is just the 30 years, same thing for the UK and Japan. You can see we did sideways. The markets aren't totally giving us a break yet. It's still a risk to be managed.

Yes, of course. I violated my own rules. Thank you for not calling me out. I love multi-decade charts. If you take this chart back, 4% on the 10-year is not abnormal at all. It was that very odd period after the financial crisis that puts everything in a wrong perspective.

It's really hurting its currency. We're keeping an eye on it. People have spent our entire careers calling for the end of Japan and the end of the Japanese bond market. That's why I'm highlighting it now because it actually is under stress. I can't time a crisis there because everyone who's done it for the last 25 years is out of a job or broke or both. So I'm just going to pass on that. It's something to watch.

Let's hit some other macro concerns people have. First, inflation. We got great news on services inflation. This is a bit of an odd chart but it's really good that services inflation is coming down. Goods went up a lot then down a lot. The fact that it's going up is a reaction to the shape of the curve. I think inflation is well behaved.

We're mainly a services economy. Manufacturing and agriculture are a tiny part. We're a consumer economy. The reason I focused on this so much is that once people's wage mentality starts, like 'my cost of living is this so I need a 5% raise,' that trickles through to other industries. That psychology is harder to break. On a marginal basis per equal unit, falling services inflation likely outweighs rising goods inflation because services are such a bigger percentage of the economy.

Again, we have visibility. Even if the Democrats sweep, it's very unlikely that the Fed's policy will change. We'll have a new chair at that point.