MacroWatch (January 2026)

Globalisation and the paradox of stability – lengthening economic cycles yet deepening financial volatility

This is an abridged version of the full report.

The full report is available at:-

https://www.flipsnack.com/779CBEB569B/macrowatch-6-january-2026

Executive Summary

This report analyzes the divergence between the real economy and financial markets in the post-globalization era, a phenomenon critical for modern asset allocation and risk management. Interestingly, a closer look at US expansions reveals a lengthening of the business cycle in the post-globalization era (post-1982). Structural factors, including improved inventory management, diminished housing cyclicality, and the stabilizing influence of globalisation and global trade, have led to longer economic expansions. Our analysis shows that the average US expansion duration has nearly tripled post-1982.

Despite this economic stability, financial market volatility has increased. A comparison of US equity drawdowns shows that while the frequency is only slightly higher post-1982, the average fall magnitude has deepened significantly. This decoupling is even more stark in the credit markets, where episodes of high credit stress have become more frequent and persistent. This paradox is attributed to the growing dominance of financial activity over the real economy, also known as financialisation.

The secular lengthening of the business cycle has materially reduced the predictive value of conventional time-based heuristics. Macroeconomic stability can no longer be relied upon as a proxy for financial market resilience. In this environment, the conclusion of an extended expansion is more likely to be precipitated by an exogenous financial or policy-driven shock than by a traditional cyclical slowdown. Accordingly, effective risk management must look beyond standard economic indicators and focus on financial fragility, and the system’s growing dependence on central bank support.

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