'Markets repositioning around policy uncertainty, not a clear dovish pivot': Buchanan

Key Concepts

• Soft Landing: A scenario where inflation is brought under control without causing a significant economic recession.
• Neutral Monetary Policy: A state where interest rates are neither stimulating nor restricting economic growth, typically aligned with the natural rate of interest.
• Value vs. Growth Investing: Value investing focuses on undervalued stocks with strong fundamentals, while growth investing targets companies expected to grow at above-average rates.
• Dispersion of Outcomes: The increasing range of possible economic scenarios and policy responses, leading to market uncertainty.
• Basis Points: A unit of measurement used in finance to describe the percentage difference in interest rates or yields (100 basis points = 1%).
• AI Infrastructure Buildout: The expansion of computing power, data centers, and related technologies to support the development and deployment of artificial intelligence.

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Economic Outlook & Market Volatility – Keith Buchanan, Global Investments (January 26, 2026)

This discussion with Keith Buchanan, Senior Portfolio Manager at Global Investments, centers on the evolving economic landscape at the start of 2026, characterized by shifting market dynamics and increasing volatility. The conversation analyzes recent US jobs data, Federal Reserve policy expectations, sector rotations, and investor sentiment.

US Jobs Data & the Soft Landing Thesis

Buchanan interprets the recent US jobs data – 50,000 jobs created with downward revisions for October and November totaling 76,000 – as supporting a previously articulated thesis. This thesis posits that the anticipated “soft landing” will not resemble the market’s expectation of a Goldilocks scenario (stable growth, low inflation). Instead, he anticipates a more complex environment with “disperse outcomes” in economic data and Fed policy, leading to market convolution and a more selective approach to growth. He notes this trend began in late 2025 and continues into 2026, contributing to market volatility. He emphasizes the volatility surrounding the “low fire” market, referencing its month-to-month fluctuations and broader implications for the American economy.

Monetary Policy & the Path to Neutral

The discussion highlights the Federal Reserve’s approach to monetary policy, with speakers indicating proximity to a “neutral” rate. Buchanan predicts increasing “dispersion” of opinions among policymakers as the Fed nears neutrality, moving away from the unified direction of lowering rates seen in the past two years. This divergence in thought is expected to create confusion but ultimately necessitate a more fundamental-driven investment approach. He explains that as monetary policy stabilizes around the natural rate of inflation and interest rates, investors will need to be more discerning.

Federal Reserve Rate Cut Expectations

Buchanan anticipates a maximum of two rate cuts from the Federal Reserve over the next eight meetings. However, he identifies a downside risk to this forecast. He states, “We’re looking at two cuts…probably as we have a little more personnel change in the Federal Reserve…but over the course of the next eight meetings, we see two two cuts max.” He suggests that zero or one cut could signal either more persistent inflation or a stronger-than-expected jobs market later in the year. This scenario, he believes, would likely trigger market volatility and a shift from growth to value, large-cap to small-cap stocks – a trend already observed in recent months.

Sector Rotation & Investor Sentiment – Early 2026 Trends

The start of 2026 has witnessed a notable sector rotation. Buchanan reports value stocks have outperformed growth by over 300 basis points, and small-cap stocks have significantly outperformed large-cap stocks. He acknowledges this is a small sample size but suggests it indicates a momentum shift towards value, international, and small-cap names, as well as sectors previously undervalued. This aligns with the broader macroeconomic picture anticipated over the past year and a half.

Investors are now prioritizing companies with strong cash flow generation, reasonable valuations, and market capitalization outside of the largest 12 names in the S&P 500. He notes that attention is shifting to companies where pricing and volume changes aren’t fully justified by fundamental shifts, suggesting potential opportunities.

The Future of Tech Stocks

While acknowledging the strong fundamentals and earnings growth of many tech companies, particularly those involved in AI infrastructure, Buchanan believes there is significant growth potential in sectors outside of this space. He states, “Look I I I don't I I can't take away the cash flow generation and earnings growth that's very real real and all of that AI related names also those adjacent to that story…the fundamental growth has been backed up.” However, he emphasizes the importance of capitalizing on the valuation gap that has widened between tech and other sectors, anticipating a potentially volatile “catch-up trade” that could benefit shareholders. He believes a broader economic expansion will support growth in areas beyond AI infrastructure.

Logical Connections & Synthesis

The conversation flows logically from analyzing recent economic data (jobs report) to interpreting its implications for Federal Reserve policy. This then leads to a discussion of market reactions, specifically sector rotations and investor sentiment. Buchanan consistently links these observations back to his overarching thesis of a more complex and volatile economic environment than the market currently anticipates. The discussion highlights a shift from a monetary policy-driven market to one increasingly focused on fundamental analysis.

Main Takeaway: The start of 2026 signals a potential shift in market dynamics, moving away from the growth-focused environment of the past few years towards a more selective, fundamental-driven approach. Investors should prioritize companies with strong cash flow, reasonable valuations, and consider diversifying into undervalued sectors and market caps. Volatility is expected to increase as the Federal Reserve navigates a path to neutral monetary policy and the economic outlook becomes less certain.