Since Jerome Powell signaled the end of the tightening cycle in October of 2023, we’ve talked about the long-awaited narrowing of the performance gap between mega-cap tech and the rest of the market (particularly small caps).
It hasn’t happened. It’s been a series of headfakes.
Why?
Because the Fed has been tapping the brakes all along (through real rates and messaging), countering an economy with fiscal and industrial policy tailwinds.
But as we entered 2026, we’re finally seeing monetary and fiscal policy moving in the same direction. And as we discussed last week, the “diffusion” (the spread/distribution) of AI and the productivity gains are beginning to show up in the data. That’s a setup for capital to spread across the market.
And we’re seeing it in the new year. Small caps are finally outperforming.
Over time in these notes, we’ve tracked this gold/silver ratio as a signal of extreme moments of safe-haven demand.
Importantly, in the chart, the extreme peaks line up with big events (WW2, the Gulf War, the pandemic).
And the sequence is consistent: Gold leads as global capital flows to the relative safe-haven asset. Silver later follows (higher) partly as a cheaper “safe haven,” but also because it’s an industrial metal.
And in the prior peaks, as we’ve discussed along the way, it’s the outsized rise in silver that pushes the ratio back down.
That’s exactly what we’ve seen. Since we revisited this ratio in the fall, silver has ripped, and the ratio has now “puked” lower from an extreme reading.
So what is it communicating?
Historically, this represents a new phase where fear of war turns into wartime behavior: military buildup, reshoring, supply chain hardening.
That’s happening.
On that note, let’s talk about the National Security Strategy document the White House posted in November (you can see it here).
This document explains many of the events that have taken place in the first couple of weeks of 2026, including this about the Western Hemisphere: “we will assert and enforce a ‘Trump Corollary’ to the Monroe Doctrine.”
And there are two other key assertions in what Trump called this “roadmap.”
First, on China, the document says deterring a conflict over Taiwan is priority, mostly because of the threat to global shipping through the South China Sea. It says it requires a vigilant posture, a renewed defense industrial base, greater military investment, and winning the economic and technological competition.
And it’s blunt on Europe. It calls out the European Union and “other transnational bodies” for undermining political liberty and sovereignty through migration policies, censorship, and loss of national identities and self-confidence. It explicitly questions whether or not they will be strong enough “to remain reliable allies.”
Expect this to create some fireworks next week when Trump gives a speech at the World Economic Forum (to a room full of the parties he is calling out).
