As we move deeper into 2026, the dominant market narrative remains deceptively simple: the economy looks solid, corporate earnings are holding up, and yet something feels increasingly fragile beneath the surface of financial markets. That tension—between economic resilience and market vulnerability—is not accidental. It is the defining feature of this year.
The central argument we are making is straightforward but uncomfortable for consensus positioning: liquidity conditions are inflecting lower, and history suggests that this is rarely benign for risk assets. Importantly, this shift is occurring even without aggressive central bank tightening. Instead, liquidity is being redirected—away from financial markets and toward the real economy.
That distinction matters far more than most investors currently appreciate.
A Structural Shift in the Liquidity Regime
Over the past decade, market participants have become conditioned to a very specific policy response: when growth falters or volatility rises, central banks step in with liquidity injections that flow directly into financial assets. This “unguided hose,” as some policymakers now describe it, has inflated asset prices globally, widened wealth inequality, and reinforced what is often called a K-shaped economy.
What is different now is not merely the level of liquidity, but where it is going.
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