Boost resilience with multi-asset and alternative strategies
Markets are entering an era of unprecedented complexity—driven by fiscal and monetary policy shifts, stubborn inflation, and rapid technological change. As these forces widen the range of possible outcomes, investors must rethink traditional assumptions and redesign portfolios for resilience.
Like a suspension bridge, today’s portfolios must balance tension and compression—anchored by traditional assets like stocks and bonds, reinforced by alternatives, and supported by multi-asset strategies. This design distributes risk efficiently, bridging uncertainty and positioning investors for opportunities in the new economy.
Key structural supports to consider include:
- Multi-asset allocations to diversify risk across geographies, sectors, and economic vulnerabilities
- Inflation-sensitive assets such as commodities and global natural resource equities to hedge against price shocks
- Gold has historically been a stabilizer with low correlation to traditional assets and enduring demand tailwinds
Fiscal policy redefines the global order
These additional supports matter because the forces reshaping markets—especially fiscal policy—are redefining the economic landscape. Over the past 18 months, fiscal policy has veered sharply from traditional norms. Nations now negotiate trade deals in public, courts weigh the legality of new measures, and governments implement trade protectionist policies at breakneck speed.
Political dynamics amplify these changes. Recent election results around the globe have favored leaders focused on defending local trade, advancing populist agendas, and reducing dependence on non-fiscal institutions. The underlying theme: build self-sufficiency and dial back global cooperation.
Japan’s recent election highlights the rise of nationalism, echoing France’s government reshuffle to appease populist opposition and Germany’s defense-focused stimulus. The European Union Draghi Report also identifies the strategic importance of self-reliance, while headlines on forced tech transfers underscore a new era of economic security and competitiveness—especially in strategic sectors like electric vehicles and batteries in the face of China’s challenge.
Regardless of how many trade agreements are signed, uncertainty persists—signaling a structural shift in global trade (Figure 1).
Strategic rivalry reshapes global markets
Beyond trade uncertainty, a deeper shift is underway—one that moves from economic realignment to strategic rivalry. The frenzied pace of change is not just about tariffs or agreements; it’s about nations weaponizing supply chains and technology to secure dominance in critical industries.
Countries are increasingly using supply chains and critical inputs—like rare earths, energy, and semiconductors—as defensive tools to block competitors from gaining an edge. Artificial intelligence (AI) is at the center, where both fundamental research and fiscal spending are fueling an arms race for technological supremacy. The stakes echo the space race of the late 1960s, which transformed scientific curiosity into a matter of national security.
The ripple effect is clear: global economic activity and cash flows are turning increasingly inward as nations embrace mercantilist policies to defend state-backed champions. This shift threatens to compress corporate margins and slow fundamental growth, as capital allocation is no longer driven solely by profit maximization and operational efficiency.
Instead, decisions increasingly favor political expediency. As a result, investment flows may reflect national political priorities rather than market logic—driving up costs, fueling inflationary pressures, and reversing the globalization trend that defined the 2010s.
Inflation risks intensify as policy priorities shift
Fiscal policy should play a much more proactive role in shaping monetary policy in 2026. President Trump will appoint a new chair of the Federal Reserve (Fed) in 2026, likely someone aligned to his goals of lowering rates.
Recently appointed Fed governor Stephen Miran already has called for jumbo 50 basis point cuts in every meeting he has attended.1
But it’s not just the Fed that is likely to lower rates. Market consensus calls for lower rates by mid-2026 from the European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia, and Swiss National Bank.2
If rates are lowered more significantly than the market expects, the growth boost—on top of recent cuts and the One Big Beautiful Bill Act—could fuel inflation in the US. Lower rates tend to spur credit formation, increase borrowing (e.g., housing), and push spending beyond actual capacity—driving prices higher.
And inflation is already above target. The 21-metric Fed Index of Common Inflation Expectations, which tracks long-run inflation expectations, has climbed sharply and now sits in the 91st percentile, well above historical norms and the median (Figure 2). This signals persistent upward pressure.
Current policy decisions—from supply chain interventions to fiscal and monetary stimulus—are likely to reinforce this bias, making inflation risk structural rather than transitory.
Inflation volatility is also high, amplified by uncertainty around key economic indicators. The main barometer of price pressures, the Consumer Price Index (CPI), now relies more on imputed estimates than actual data, reaching a record share.3 This shift stems from resource constraints following the 2025 US government shutdown and ongoing DOGE-related effects since January 2025.4
Official inflation readings are now less precise and more volatile—at a time when the global economy is evolving rapidly and inflation remains a central concern.
Rising deficits increase risks as yield curve shifts
To finance self-sufficiency, populist policies, and growth, governments are issuing more debt at a time when debt levels and interest expenses are already elevated. Across the Group of Seven countries, the average debt as a percentage of GDP is 133%.5 Even if we remove Japan’s 236%, that figure remains high—116% of GDP.6 Both averages are double-digit percentage increases in indebtedness over the past decade.
These high debt levels coincide with rising interest expenses—a trend most pronounced in the US, where interest outlays have surged by 176%. In fact, the US now spends more on servicing its debt than on its defense (Figure 3).
With more spending going to pay down debts, less is available for growth initiatives and entitlements. This can become a headwind to productivity, as slower growth means economies cannot grow their way out of high debt.
Policymakers often respond by issuing more debt to stimulate activity, which makes the situation worse in the long run. Alternatively, they may tolerate inflation running above trend, since higher prices erode the real value of debt, making deficits easier to manage potentially.
From anchors to bridges: Rethinking portfolio design
These policy choices and fiscal impulses could steepen global yield curves. To offset higher inflation and mounting fiscal risks, investors likely will demand greater compensation—pushing term premiums on long-term Treasurys higher. In fact, after years in negative territory, term premiums are now positive after trading at their highest level in over a decade in 2025.7
This shift matters: The steepening yield curve and rising term premiums signal a structural shift in portfolio construction. Long-duration Treasurys may no longer anchor diversification. Instead, building resilience requires a broader toolkit: multi-asset strategies, inflation-sensitive exposures, and targeted hedges to balance risk and capture opportunities across evolving economic regimes.
How can investors boost resilience?
1. Add a global multi-asset strategy allocated across economic environments, assets, and geographies in a single allocation like the SPDR® Bridgewater® All Weather® ETF (ALLW) to help:
- Balance risk: Because rising growth/falling inflation assets are the main allocations in many portfolios, incorporate exposures that thrive in varied economic conditions
- Extend the asset allocation mix: Go beyond stocks and nominal bonds to include alternatives and inflation-sensitive assets
- Reduce US equity concentration: At a time when US assets face unique pressures from the shift away from global cooperation, global diversification matters more than ever
2. Complement the core with targeted exposures to commodities, natural resource equities, and gold to hedge inflation volatility and broaden portfolio balance—critical given today’s wide range of possible outcomes.
- Natural resource equities: Here, a global lens adds value. In 2025, as macro shifts accelerated, 36 countries outperformed the US with an average excess return of 14%—the strongest result since 20098
- Gold: Beyond its role as an inflation hedge and its growth dynamics, gold may have further strategic value. Equity volatility tends to spike faster when markets fall than it subsides when they rise; gold can help cushion that jump risk in the event of fiscal or monetary missteps. Additionally, structural demand from central banks—driven by de-dollarization and rising deficits—provides a tailwind as sovereign debt concerns grow globally
The old playbook is obsolete
The new economy requires portfolios engineered for complexity—bridges built to span uncertainty that are reinforced by diversification and designed to thrive amid evolving fiscal policy, strategic rivalry, and persistent inflation.
Investors who adapt now will be best positioned to navigate future volatility and seize the opportunities ahead.
Implementation ideas
Multi-asset allocation strategies
Global inflation-sensitive markets
SPDR® Gold Suite
