At first glance, the setting is almost idyllic. Lower interest rates, falling inflation and no immediate signs of recession in major economies. From New York to Frankfurt, Markets enter 2026 without major shocks. The narrative that has prevailed in recent months has been about an orderly rotation, a soft landing, and artificial intelligence (AI) keeping the bullish pulse of big tech companies alive. In this seemingly stable context, a question that the market has not yet fully resolved begins to gain momentum: whether the available liquidity will be sufficient to continue to support valuations.
The doubt is not new, but it is gaining weight as monetary conditions abandon the most aggressive expansionary phase and enter a dosage phase. Bank of America estimates there will be 78 rate cuts worldwide in 2026, a significant figure, although much lower than those of 2024 and 2025when 164 and 155 reductions were accumulated respectively. The bank nevertheless believes that this downward trend is still sufficient to support stock markets at current levels, with a growth forecast of 8% for the MSCI ACWI index.
However, maintaining is not the same as stimulating. This nuance is starting to be relevant. Because what was until recently an almost unconditional monetary environment is now becoming a more demanding, more selective process, with less margin for error.
Monetary expansion no longer works alone
JP Morgan AM’s annual Global Outlook report is clear in this regard. By 2026, the manager expects a liquidity environment that will still be constructive, but specifies that flows will no longer be as broad or as automatic. “Liquidity is still available, but is more conditioned on profit visibility, macroeconomic stability and budgetary discipline“, they explain. A vision also shared by Fidelity International and Goldman Sachs, where we no longer talk about recovery, but about efficient allocation of capital.
Context helps understand change. The Federal Reserve (Fed) has cut rates six times (three in 2024 and three in 2025) since September 2024. and keeps the doors open to at least two additional cuts during 2026, according to Reuters. But it has also started to slow down its process of reducing its balance sheet. In fact, it once again purchased short-term debt to ease tensions in financial markets. The measure is presented as technical, but it nonetheless remains a sign that the room for maneuver is no longer unlimited.
In the case of the European Central Bank (ECB), the margin is even smaller. Standard Chartered and AXA Investment Managers agree that after the cuts made in 2025, there will probably only be room for a final cut in 2026, if that. Rent 4, on the other hand, believe that nothing will happen. The consolidated message in Frankfurt is that monetary policy has played its part, but it cannot continue to do all the work.
As this monetary support loses intensity, attention is shifting to the factors that actually support valuations. For now, the market is supported by the solidity of results, technological appeal and a rotation that maintains active buying pressure. But this same rotation also implies that money moves, changes destination and does not stay still.
As Juan Carlos Ureta, president of Renta 4, recently explained, liquidity “moves from one sector to another and from some securities to others, which causes the indices to maintain or increase without the need for additional stimuli.” This dynamic, according to Ureta himself, is the main antidote against a accident.
But not all markets react in the same way. While big tech companies resist, some are already showing signs of fatigue. Alphabet corrected more than 3% last week. Amazon is down more than 2% last month. Nvidia, which had just recorded a 36% annual appreciation, reduced its sales by 5% in the last 30 days. At the same time, defensive stocks and small-cap companies are starting to attract capital flows previously concentrated in the big names in the technology sector.
The Russell 2000, an index which brings together American small caps, has reached historic highs. And companies like State Street and Schroders see this rotation as a sign of maturity, not weakness. “The market is readjusting towards assets offering relative value and less dependent on multiples,” underline Pictet Asset Management.
But even with this rebalancing, the financial system continues to operate on a basis of trust. It’s not just a question of liquidity, but of perception on the stability of the rules of the game. Here a less visible factor comes into play, but one that is increasingly mentioned by investment banks and multilateral institutions: the legal and financial security of safe haven assets.
The ECB’s financial stability report published in November warns of possible disruptions in the non-bank parts of the system, where liquidity is not as evident. Shadow banking system, private credit and real estate sector show high levels of leverage and some reliance on conditions that might not hold if the flow of capital slowed or changed direction.
Furthermore, decisions such as the management of frozen Russian assets have reignited the debate. What happens if countries that hold international reserves begin to doubt the financial neutrality of the United States or the Eurozone? Could this change the holding map and alter structural capital flows? According to TD Securities, any decision to directly use these assets as debt collateral could open a new chapter in global liquidity allocation. And while it wouldn’t lead to an immediate shortage of money, it could make financing Western deficits more expensive and shift the current balance between traditional safe havens and emerging alternatives.
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