RPT-ROI-Roaring global growth train emerging from 2026 fog: Mike Dolan

By Mike Dolan

LONDON, Feb 10 (Reuters) - The chaotic newsflow, geopolitical shape-shifting and wild market swings of 2026 have clouded one basic signal: the global economy is racing forward.

Market takes this year have covered everything from the dollar and Federal Reserve independence to precious metals swings, NATO tensions, Japanese elections and even carnage in software stocks. This has all left investors breathless in 2026.

And we're only six weeks in.

But, as Morgan Stanley strategist Andrew Sheets points out, all of this noise masks a "powerful overlapping signal worthy of respect".

A cyclical whoosh is underway in the global economy.

Sheets makes the case that one indicator of rising global economic activity may be dismissed as a quirk with alternative explanations, but several coinciding are harder to ignore.

For a start, there's copper, traditionally at the heart of both tech and industrial activity. The metal's price has soared up to 40% in six months. While that may be partly related to the speculative frenzy in precious metals as well as structural supply issues, it tallies with other signals and drivers.

That includes South Korean equities, which have historically had high cyclicality and sensitivity to world trade. They have climbed as much as 68% over that period, Sheets said. Financial stocks too have risen more than twice that of their global stock benchmarks, and small caps are revving up as well.

Meanwhile, the catalysts for a global cyclical upswing are mounting.

"Fiscal, monetary and regulatory policy are all getting easier - all at the same time, all around the world," the Morgan Stanley strategist told clients.

Donald Trump's "One Big Beautiful Bill" is about to kick in this year, while Germany's near one-trillion euro fiscal spree is also starting to show up in industrial orders. And Japan's Prime Minister Sanae Takaichi, who gained a super-majority endorsement from this weekend's election, has big spending plans too.

At the same time, markets remain convinced there are at least two more Federal Reserve interest rate cuts due this year, with two from the Bank of England possibly in the works as well.

And then there's the eye-watering AI-related capex boom, with the four biggest U.S. megacap 'hyperscalers' set to go stratospheric this year with up to $650 billion of spending.

HEAT, THEN FIRE?

Societe Generale's Manish Kabra also outlined a litany of market signals pointing to a cyclical acceleration, including a rotation from tech leaders to the wider stock universe that he described as the "sharpest broadening in five years, fueled by cyclical data".

Over the past three months, the S&P 500's equal-weighted index, which helps smooth distortions caused by megacap moves, has climbed about 8%, more than twice the gains of the S&P 500 overall.

What's more, U.S. small-cap stocks captured by the Russell 2000 index and the S&P 600 have now outperformed the Nasdaq 100 by some 13% over the past six months.

"Macro and micro signals together point to continued broadening of market performance as profits widen," Kabra said.

And if investors are rotating sectors on Wall Street, they may well be doing so internationally also - and weighing on the dollar in the process.

European and Hong Kong stocks are already clocking 2026 gains of more than twice those of the S&P 500 in dollar terms, with a 10% jump in broad emerging market stock indexes outstripping U.S. benchmarks five times over.

High-frequency updates published last week are also hinting at a global boom. JPMorgan noted that January business surveys from America and around the world flagged rising activity across all sectors and regions consistent with annualized global growth this quarter of 3%.

All of which suggests a 'hold on to your hat' theme is developing beneath a volatile and confusing market surface.

But, as is often the case, all these data points raise more questions than answers.

If we're getting a big cyclical upswing, where are all the new jobs? Is AI weighing on hiring? If the economy is heating up so much and inflation is still above target, why is the Fed even thinking of easing again? And if those easing hopes were whipped away again, would that mute the boom in turn?

It's also entirely possible these loose global conditions will eventually come back to haunt the financial world via bond market ructions.

But the heat comes first. Perhaps later will be the fire.

The opinions expressed here are those of the author, a columnist for Reuters.

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