Navigating inflation, commodities and the next wave of AI
As we enter 2026, the backdrop for Australian and global equities remains broadly supportive. Despite moderating levels of economic growth across key markets, corporate balance sheets remain generally healthy and innovation-led productivity gains continue to emerge. Whilst risks remain – most notably around the persistence of inflation, global trends causing divergence in commodity prices, and the evolution of AI – a prudent approach to diversification and a measured exposure to structural themes may place investors in good stead for the year ahead.
Three high-conviction views for 2026:
1. Persistent inflation – what does it mean for equities?
Inflation has again proven more persistent than many expected, both globally and in Australia. While the peak inflation scare appears behind us, progress back to central bank targets remains underway. Whilst the effect of more sustained inflation is reasonably clear in economic terms, the impact of sustained inflation (and associated rate rises) on equity markets is generally more nuanced.
In a world where rates stay “higher for longer”, the equities market may increasingly reward companies that can protect margins. Pricing power, cost discipline and operational flexibility are often seen as defensive corporate characteristics in inflationary periods. Balance sheet strength also comes into focus, with low leverage and reduced refinancing risk providing additional resilience to portfolios where financial conditions tighten episodically.
What does this mean for investors?
In our view, inflation persistence is not inherently negative for equities, provided portfolios are constructed with a consciousness of underlying investment quality. Consideration to the portfolio’s aggregate durability of earnings and overall balance sheet robustness is often key to navigating monetary tightening within the equities arena. A very strong focus on earnings growth, despite being a strategy rewarded handsomely throughout 2024-2025, can prove fickle should consumer spending come under pressure. In this sense, investors taking a more balanced approach between corporate durability and growth may find themselves better positioned should central banks be forced to pivot to a more hawkish stance in the year ahead.
2. Commodities diverged in 2025 – how should equity portfolios approach this in 2026?
2025 saw incredible divergence amongst commodity prices, leaving many investors divided on what to expect in the new year. Figure 1 shows the extent of dispersion amongst a handful of key commodities over the past year, with various global influences pushing gold and silver to all-time highs whilst oil and thermal coal sank to multi-year lows.
Figure 1: Commodity price moves – 12 months to 30 November 2025
Source: FactSet, Macquarie Research, December 2025. Price change is in USD.
Chart Takeaway: Behind these drastic moves were several structural themes pushing each in different directions – currency debasement and geopolitical risks drove astounding gains in precious metals such as gold, whilst critical minerals and rare earths benefited from deglobalisation and supply-chain security initiatives. In contrast, iron ore stagnated with Chinese demand remaining subdued, and oil fell to a five-year low on excess supply and muted consumption growth.
For Australian equities in particular, a market renowned for its extensive and diverse commodities exposure, the dispersion of outcomes in 2025 was an excellent reminder that “commodities” exposure in equity portfolios should never be treated as monolithic. Many commodity-driven names across the ASX – iron ore miners amongst the large-caps, gold miners in the mid- and small-caps space, and a number of oil producers spread throughout – start 2026 with their respective key underlying commodity either well above, or well below, the longer-term average price range.
What does this mean for investors?
Whether investors position their portfolios in 2026 for the persistence of these diverging trends or for their reversion, the granularity of exposure management across commodity-linked stocks within the resources, energy and rare-earths space will likely be critical for the year ahead. For the long-term investor seeking more consistent market returns from their allocation to listed equities, care should be taken to minimise unwanted exposure to binary commodity-linked outcomes. Entering 2026 with an outsized tilt to gold miners could easily blunt participation in a risk-on market rebound, just as the desertion of iron ore on sluggish sentiment may prove costly should China re-engage in infrastructure and construction stimulus. Intra-commodity exposure management in a balanced portfolio will be key to ensuring positioning across this sector is tactical to returns, rather than structural.
3. 2026: the evolution of the AI trade?
AI has driven incredible returns for investors over the past few years, and it is likely that the artificial intelligence revolution has much further to run. As 2025 comes to a close with a number of AI names having retreated slightly from their lofty November peak, it may be that 2026 will bring in the next phase of AI-driven value creation in the listed equity space. The most important piece for investors will be understanding which characteristics will define this next phase.
The popular allegory of chipmakers and AI-infrastructure firms “selling shovels during a gold rush” has certainly materialised, with many posting incredible gains throughout the past two years and finishing 2025 as some of the largest and most profitable firms in history. Along these lines, the next logical phase may be more directly about identifying the resulting “gold” now that the shovels abound – that is, non-AI companies that are delivering tangible productivity gains, margin expansion, or revenue growth through effective AI adoption.
Validation of the expectations of this emerging technology may therefore lead to much broader-based AI-driven gains, which are less quarantined to the IT and Communications sectors - the primary beneficiaries of investor interest in AI to date. Healthcare, industrials and financials are all examples of sectors which stand to benefit materially from successful AI application; however, they have not yet shared the same stampede of capital market interest as key AI-infrastructure names.
What does this mean for investors?
The key takeaway for investors here is that “AI exposure” in the equities market is likely to become more nuanced. The consensus is that a healthy exposure to the AI thematic will be critical for equity portfolios in 2026, but the outstanding question is where AI-driven value creation within listed equity markets will be most fruitful in this next phase. Counterintuitively, the existing AI trade – that is, abandoning “legacy” industries to pile into frontier tech/AI names – may become a stale expression of AI beneficiaries in the next phase. The listed IT/Communications companies regarded as pioneers of AI technology by nature, including NVIDIA, TSMC, Microsoft, Alphabet, Broadcom and Palantir, are now some of the largest companies in the world – reflecting a whole-hearted conviction from investors that the technology does have widespread and profitable corporate applications.
As we pass into 2026, investors may therefore face an important crossroads in the AI revolution: how do we evolve our investment approach from capturing AI exposure by nature to AI exposure by opportunity? The answer is neither clear nor simple, however will likely require a more considered approach to positioning across broader pockets of equity markets poised now to capitalise on the implementation of the emerging technology, as opposed to its supply.
Conclusion
As 2026 unfolds, equity investors will need to balance resilience with opportunity. Persistent inflation, divergent commodity outcomes, and the next phase of AI adoption all highlight the importance of thoughtful portfolio construction. By taking a considered approach to diversification, selective thematic exposure, and disciplined positioning across both traditional and emerging sectors, investors can navigate uncertainty while remaining poised to capture the structural drivers of long‑term equity market growth in both Australian markets and abroad.
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