2026 set to be strong for equities: Santosh Rao sees macro tailwinds strengthening

Global markets are entering a tense but pivotal stretch as investors await the US Federal Reserve’s next policy decision while also navigating uncertainties around the AI trade, crypto liquidation, and Japan’s policy stance.

Speaking to ET Now, Santosh Rao, from Manhattan Venture Partners said the Fed’s upcoming move is largely predictable. “On the Fed, it is an easy call. It is pretty much given that it is going to be one cut,” he noted, pointing out that market probability shifted sharply in recent weeks—moving from 90% to 30% due to labour market softness—but has now settled around “80%.”

Rao added that the Fed Chair has already signalled caution regarding further cuts, saying investors should “not expect that to just automatically flow in.” Still, he believes one cut would be supportive for the U.S. and global markets, helping emerging economies through improved liquidity and a softer dollar. Whether further weakness in the labour market leads to an additional cut before the next Fed leadership transition remains to be seen.

On the AI front, Rao described the trade as being “on a holding pattern,” with investors debating whether the recent frenzy represents a bubble or a long-term transformation. Despite the noise around valuations and sustainability, he emphasized that “at the end of the day Nvidia is still the leader and it is going to do well.”

The conversation then shifted to the sharp correction gripping the crypto market. Rao admitted the industry is going through a confusing phase.

“We do not know why the crypto is going through what it is going through, but it is definitely going through some kind of a correction,” he said, adding that some forecasts point to Bitcoin potentially sliding “at least till 60,000.” With $4–5 billion withdrawn from crypto ETFs in November alone, investors are asking where this liquidity will migrate.

Rao expects much of it to eventually flow into equities, supported by the year-end seasonal rally, expected tax cuts, pro-growth Trump-era policies, regulatory easing, and the possibility of more rate cuts. Tariff-related uncertainty is also beginning to ease, offering companies clearer visibility—something he believes will encourage rehiring and renewed capex. As a result, he said “2026 is expected to be good for equities” and that this remains the consensus view.

He also addressed chatter around the Bank of Japan’s potential rate hike, which has already begun dismantling the global carry trade. “The carry trade is getting totally dismantled,” Rao observed, noting that this upheaval could drive liquidity toward safer assets.

He highlighted renewed interest in bonds, the strong performance of 60-40 portfolios, and the likelihood of gold gaining traction if risk-off sentiment deepens. While flows may shift temporarily, Rao maintained that the broader setup for U.S. equities in 2026 remains constructive, backed by improving macro conditions and a more stable global backdrop.