Macro: The Death Of 60/40

A Look In The Rearview Mirror

2025 confirmed the regime change we identified a year ago. Fiscal dominance took center stage as governments worldwide prioritized deficit spending over Central Banks' independence. Liquidity drove risk assets higher as Central Banks opened the taps to absorb government debt issuance. China's technology sector leapfrogged expectations: DeepSeek and Moonshot AI demonstrated that US compute restrictions bred efficiency innovation rather than containment.

Our call on the dollar was to see strength in rate differentials and capital inflows; instead, the DXY fell 12% as a "weak dollar" became an explicit policy. The lesson is important: in a fiscal dominance regime, policy intent matters more than traditional macro relationships. Governments need weaker currencies to inflate away debt burdens.

Why The 60/40 Is Dead

The balanced portfolio worked for forty years because central banks operated independently, prioritizing price stability above all else. That independence rested on a fiscal premise: governments maintained deficits that were small enough for debt markets to clear without central bank support.

Fiscal dominance inverts this logic. When governments must fund structural deficits regardless of market conditions, central banks face an impossible choice between maintaining financial stability and fighting inflation. They will choose stability. Treasury net issuance now outpaces the Fed's balance sheet absorption, forcing private markets to absorb duration at higher yields. The US fiscal impulse added roughly 2% to GDP in 2025 and remains expansionary.

The result is a correlation flip. When deficits drive yields higher, bonds fall due to supply dynamics, and equities fall due to compression of the discount rate. Stock and bond correlation, negative (-0,29% on average) for most of 2000 to 2020, has remained persistently positive since 2022 (reaching a 40-year peak at +0.80 in mid-2024). Inflation becomes a feature rather than a bug: it erodes the real value of debt, which is precisely what overleveraged governments need. Cash provides limited refuge: Treasury bills may outperform in acute crises, but as a strategic allocation, cash drag compounds when moderate inflation is the policy path of least resistance.

This elevates tangible assets. Equities with pricing power pass inflation through to customers. Companies exposed to structural spending benefit regardless of the cycle. The question shifts from "stocks vs. bonds" to which tangible assets, in which regions, with which structural tailwinds.

Regional Outlook

The United States enters 2026 in late-cycle conditions. Earnings growth continues, with the consensus expecting around 14% for the S&P 500; however, the risk of multiple compression from rate uncertainty caps total returns. Refinancing pressure will hit margins, particularly in sectors that levered up during the low-rate window. Selectivity matters more than broad exposure.

China presents the contrarian case. The 15th Five-Year Plan mandates approximately $2 trillion in technology spending over five years, which will flow into semiconductors, AI, digital infrastructure, and advanced manufacturing. Valuations offer cushion: 19x earnings with 34% growth compares favorably to US tech at 38x with 16% growth. Foreign ownership sits at just 3.7%, far below the 8.2% reached in 2015. The risks are real and require active monitoring: yuan depreciation, geopolitical escalation, domestic demand disappointment, and corporate governance opacity. However, current pricing already reflects significant skepticism, and policy clarity in Beijing outweighs policy chaos in Washington. We see asymmetric upside for patient capital.

Japan offers a different kind of opportunity. It is the original fiscal dominance economy, running this playbook for three decades. The investment case rests mainly on corporate governance reform: TSE pressure on companies to unwind cross-shareholdings and target ROE above the cost of capital is driving real behavioral change. Following the August 2024 flash crash, the BoJ recognized that abrupt normalization can increase global volatility. This makes aggressive tightening unlikely and should keep the yen stable or weak, limiting carry trade risk (witness the recent "messaging" by the BoJ about its latest rate increase).

Europe faces persistent structural headwinds. Germany's trillion-euro investment program signals a genuine shift in attitude, but implementation faces serious obstacles. The revived Stability and Growth Pact constrains fiscal space across the periphery. Germany's coalition remains fragile, with spending priorities contested domestically. Energy transition bottlenecks (permitting delays, grid capacity, and critical mineral sourcing) slow the green infrastructure buildout that was supposed to drive the next investment cycle. The repatriation flows that lifted European equities in 2025 may have run their course. This is not disaster territory, but neither is it where opportunity concentrates. We maintain minimal exposure.

The Dollar: Three Forces In Tension

The dollar's trajectory reflects three dynamics on different timeframes. Cyclically, "weak dollar" is now policy. A cheaper dollar eases global financial conditions and inflates away dollar-denominated debt, which is why the DXY fell 12% in 2025 despite rate differentials that historically would have supported strength.

On a more structural point of view, two opposing forces compete. On one side, "Dollarization 2.0" is being engineered through Stablecoins. Beyond being the future of payments, they enable the siphoning of emerging market savings directly into Treasury bills and funding American deficits while spreading dollar dependency at the retail level. The market has grown from $5bn in 2020 to $300bn today, with a trajectory toward $1-2tn over the next 3-5 years. This is structural demand for dollars that bypasses traditional channels entirely. No wonder the US administration is enthusiastically backing them.

On the other hand, as twin deficits widen, the safe-haven status of traditional reserve holders frays, and they diversify into gold (notably China) or cryptocurrencies. The tension between these forces keeps the dollar central without making its direction obvious. Sudden strength would signal risk-off conditions and a tightening of liquidity. Continued weakness would allow global reflation to proceed, but the risk is an inflation boomerang. 

The dollar remains the canary in the coal mine.

Focus On The Political Put: 250th Anniversary and FED Transition

Two underappreciated catalysts reinforce our view that policy support will floor risky assets in 2026, even as traditional headwinds mount.

On July 4, 2026, the United States celebrates its 250th birthday. A once-in-a-generation moment that the administration has signaled will be a defining event of the second Trump term. The political calculus is straightforward: a recession or market crash during America's 250th anniversary celebration would be catastrophic optics for a president focused on legacy and spectacle. This creates powerful incentives to front-load fiscal stimulus into 1H26, accelerate infrastructure and defense spending to showcase 'American greatness,' and apply pressure across regulatory agencies to maintain accommodative conditions. The timing matters: July 4 falls squarely in the Q2-Q3 inflation risk window. Any policy flexibility will be deployed to ensure the celebration is not overshadowed by economic distress.

Jerome Powell's term as FED Chair expires in February 2026. Given the administration's well-documented criticism of Powell's rate policy, a successor more aligned with White House preferences is virtually sure to emerge. The confirmation process will telegraph the direction of monetary policy before the transition occurs. A more accommodative Fed removes the last institutional constraint on fiscal dominance. The "choose stability over inflation" dynamic we described becomes even more pronounced when the central bank chair owes their appointment to the sitting president. Markets will price this in well before the formal handover.

The combination of personal political stakes (anniversary legacy), electoral pressures (November midterms), and institutional change (Fed leadership) creates an unusually aligned set of incentives for economic support. This does not mean risks disappear; indeed, the likely response to any weakness is more stimulus, which circles back to inflation, dollar dynamics, and the case for tangible assets. However, it does mean that the policy put in place is stronger than consensus assumes. The administration cannot afford a weak economy in 2026 and will deploy every available tool to prevent one.

A Challenging 2026 Calendar

The year ahead presents a challenging path.

The first half brings refinancing stress vs. the Fed transition. The "maturity wall" is approaching, and it begins with approximately $930bn in investment-grade corporate debt maturing in 2026, up from $720bn in 2025, concentrated in technology firms that issued aggressively during the zero-rate period. This debt rolls over at rates 200 to 300 basis points higher than the original issuance. Simultaneously, the confirmation and transition process of the Fed chair will dominate headlines, creating uncertainty until the new leadership's policy stance becomes clear.

The second and third quarters introduce an inflation risk. The comparison base becomes the benign prints of 2025, some as low as 2.3% year-over-year. Even stable monthly inflation would produce headlines screaming "reacceleration."  However, the 250th American anniversary creates counter-pressure: the administration will be highly motivated to ensure any inflation narrative does not spoil the celebration. Expect targeted interventions, tariff pauses, strategic reserve releases, regulatory forbearance, or any other necessary measures to manage the narrative.

Finally, the second half will see the full activation of the political put. Midterm elections in November, combined with post-anniversary momentum, create maximum incentive for policy support. A new Fed chair will likely be eager to demonstrate accommodation. The risk is not that support fails to materialize, but that it proves inflationary, validating the case for tangible assets over duration.

Net assessment: the path is narrow, but the safety net is wider than it appears. Selectivity remains essential, but the political configuration favors risky assets more than the economic fundamentals alone would suggest.

Investment Implications

For equity-focused portfolios, the demise of the 60/40 rule clarifies rather than complicates the task. Diversification increasingly comes from owning the right equities in the right regions with the correct structural exposures, rather than relying solely on asset class mixing.

The structural winners share common characteristics. AI and robotics benefit as wage pressures force companies to accelerate productivity investments. China technology captures policy-mandated spending and valuation rerating potential. Clean technology and sustainable infrastructure benefit from fiscal programs in both the US and China, providing multi-year tailwinds. Healthtech and medtech offer demographic support with less rate sensitivity than the broader market.

What to avoid is equally clear. Rate-sensitive sectors without pricing power will suffer as refinancing costs rise. Concentration in fully valued US mega-caps offers poor risk-reward. Anything resembling a bond proxy risks derating alongside bonds themselves.

What Would Invalidate This View

• A credible fiscal consolidation, though unlikely, would restore central bank independence and reinstate the old correlation regime.
• A productivity boom driven by rapid AI adoption could structurally collapse inflation, allowing real interest rates to fall without fiscal pressure.
• A deflationary shock from a hard landing in China, a financial accident, or a geopolitical event triggering global risk aversion would send capital flooding back into duration, regardless of fiscal dynamics.
• A sufficiently severe inflation spike could force the Fed to prioritize price stability over Treasury financing needs, breaking the fiscal dominance assumption entirely. 
• A contested or chaotic Fed transition could create a policy vacuum at a critical moment.

We view these as tail scenarios rather than base cases, but they define the boundaries of our conviction.

How We Express This View

The death of 60/40 is not a reason to retreat; it is a reason to be selective. Our thematic strategies are designed precisely for an environment where diversification comes from owning the right equities rather than mixing asset classes.

Productivity & Technology

Artificial Intelligence & Robotics - Productivity technologies sit at the center of our thesis. As wage pressures persist and companies face refinancing stress, the deployment of automation and AI becomes a necessity. Our strategy delivered a 120% increase over three years, outperforming our peers by 46%, driven by a 32% allocation to AI platforms (compared to the average of 12% among our peers).

China Technology - Our highest-conviction contrarian position. The $2tn in policy-mandated spending flows directly into our investment universe. Valuations offer asymmetric upside at 2.6x P/S, compared to 7.3x for comparable US names, while foreign ownership at 3.7% leaves room for a significant rerating.

Security & Space - Security is a fundamental human need. The strategy returned +57% in 2024 and +27% YTD in 2025, benefiting from cybersecurity urgency and commercial space expansion. NATO's 2025 Commercial Space Strategy accelerates defense and commercial partnerships.

Healthcare

Biotech 360° - Healthcare trades at its deepest discount to the S&P 500 in decades. Biotech offers the purest expression of innovation assets that Big Pharma must acquire. Our strategy returned a 23% gain year-to-date, focusing on clinical-stage names with human proof-of-concept data.

Bionics - Prevention and diagnostics benefit from the same fiscal pressures driving the death of 60/40. Our 60% allocation to diagnostics and monitoring positions the strategy to benefit from policy tailwinds. At a PEG of 0.8x versus 2.1x for the Nasdaq 100, growth is cheaper here than almost anywhere.

Financial Infrastructure

Fintech - Financial technology is maturing from growth-at-all-costs to sustainable profitability. The sector is shifting focus to AI-powered automation, embedded finance, and cross-border payments, areas where unit economics are improving.

Stablecoins (just launched) - The 'Dollarization 2.0' we describe is an investable option. Our strategy encompasses the infrastructure buildout, including issuers, exchanges, and payment integrators. The market grew from $5 billion in 2020 to $200 billion today, and the trajectory is only just beginning. We were early in mobile payments in 2014, delivering +300% through 2021. It's time to be early again.

Energy Transition

Sustainable Future - After an excellent 2025, cleantech is positioned for continued momentum. Our portfolio now trades at MSCI World valuations, but with a projected 3-year EPS CAGR of 30%, triple the market average. We are concentrated in power grids, energy storage, and battery producers.

Our Takeaway

The balanced portfolio served investors well for forty years. The next decade requires a different approach. The 60/40 era ended when fiscal policy displaced monetary policy as the dominant force in markets. Bonds provide less reliable protection against equity drawdowns. Cash loses purchasing power over time. Tangible assets offer both growth and inflation protection, and equities remain the most accessible and liquid expression of that reality.

2026 will test convictions and likely be a challenging year. We think the winners will be equities tied to real spending, productivity technologies, and China's policy engine. In other words, tangible assets above duration, crypto & stablecoins above cash, mid-caps above valuation-rich mega-caps. Atonra strategies offer exactly this kind of exposure.

Details for each of our investment themes

• AI & Robotics: A New Center Of Gravity
• Blockchain: Real utility, real returns
• China Technology: The $2tn Tailwind
• Healthcare: From Underdog to Front Runner
• Fintech: Thriving In The Era Of Retail Engagement 
• Security & Space: There is No Fighting The Surge
• Stablecoins: The $100tn Payment Rail
• Sustainable Future: Outperformance Runs On Electricity
• CIO's Top Selection: Concentrated By Design