The first quarter of 2026 falls at a point in the market cycle where many obvious questions have already been answered. Inflation is no longer accelerating, the Federal Reserve is no longer tightening its policies as aggressively, and the recession fears that dominated previous years have subsided.
What remains unresolved is how much growth remainsHow patient policy will be, and how markets will behave once relief is priced in.
This outlook focuses on this transformation. Not on calling the summit, but on understanding where optimism remains justified and where risks are quietly accumulating beneath the surface.
What does this mean for stocks in the first quarter of 2026?
The Big Picture: Politics and the Story of Relaxation
The overall background has moved beyond crisis avoidance to second-order effects. Markets are increasingly focusing on the idea of a possible unwinding of the yen carry trade, especially as US policy turns more accommodative and Japanese yields rise.
This concern is not unfounded, but it is also exaggerated Many traders.
At this point there is There are no technical indicators indicating a systemic disintegration. Price movement across equity, volatility and credit markets does not confirm crisis conditions. What we see instead is increased sensitivity to risks that traders know exist, but cannot yet see.
In other words, the fear is apparent, but the harm is not.
This creates an important distinction for the first quarter of 2026:
- Political transformations remain supportive for risky assets.
- Price trends remain constructive.
- Markets are Become more reactive to underlying financing risks.
So the prevailing situation is cautiously bullish, not complacent. Participation remains justified, but awareness is more important than it was earlier in the cycle.
To understand why this risk is being talked about at all, we have to look at Japanese yields.
Japanese Yields: Why Watch the Market Closely
Before we dive into our stock analysis, let’s first lay out the big picture.
For many years, Japanese bond yields barely moved. This made the yen cheap to borrow and easy to sell, which helped finance risky global trades across stocks, credit and commodities.
Obviously, this regime has changed in 2025. Ten-year Japanese government bond yields have changed to its highest level in more than a decadepushing above key technical levels and trending strongly above the 10-EMA. This is not a short-term spike. It reflects a structural shift away from severe revenue suppression.
What size tells us:
- Yields are no longer fixed near 0-1%.
- Financing conditions linked to the yen are slowly tightening.
- The era of frictionless yen borrowing is beginning to fade.
This explains why traders are alert. However, it is important to be precise.
Historically, withstand commercial pressures It only becomes destabilizing when yield moves Rapid, unregulated, or imposed by policyespecially with regard to 10-year US yields.
If we take a look at 10-year US yields minus Japanese 10-year yield chart (weekly time frame), the context becomes clear:
Note how the S&P 500 typically suffers sharp drawdowns only when US bond yields collapse rapidly against their Japanese counterparts.
So the implication is not an impending crisis, but rather a declining tolerance for excessive leverage. Risk is caught before it subsides. This is the stage the markets are currently in.
