Volatility in 2026: What’s shaping markets and outcomes?

Nvidia’s $5 trillion valuation was exciting, but will the momentum sustain? Diego Parrilla, Chief Investment Officer at Quadriga Asset Managers, discusses volatility and risk management.

In this interview, Diego shares his thoughts on the surprising and unsurprising market trends of 2025, particularly highlighting the significant impact of AI technology. He draws parallels between current dynamics and the dot-com era, while discussing the nuances of managing market volatility and tail risk. Diego elaborates on the challenges and opportunities in fixed income and currency markets, and shares his views on 2026 markets, emphasizing the potential for increased volatility and structural shifts.

Unfolding market trends in 2025

The impact of artificial intelligence (AI) was monumental in 2025. While the prominence of AI as a game-changing technology wasn’t a surprise, the momentum and scale of its influence have reached levels once deemed unrealistic. The dramatic ascent of companies like Nvidia, breaking the $5 trillion valuation mark, serves as an indicator of how AI is resetting market valuation expectations. Diego likens the current AI trend to the early days of the dot-com era, suggesting that while the technology offers transformative potential, the frothy investment environment may lead to dramatic events previously witnessed following the dot-com bubble burst.

Challenges and opportunities in volatility and risk management

Turning to market volatility, Diego views volatility not just as a challenge but as an opportunity for strategic positioning. As a volatility and tail risk manager, his focus lies in leveraging options for protective measures. By investing in options with limited loss, Diego advocates for a risk management approach that ensures certainty in downside exposure, allowing for reliable, reactive convexity. However, he cautions that traditional safe-haven assets like the dollar and fixed income are facing unexpected challenges, requiring a re-evaluation of defence strategies.

Market outlook for 2026

Looking ahead to 2026, Diego predicts a year marked by volatility and shifts in market paradigms. The extremes in valuations and the polarisation of markets signal potential turbulence. Markets like gold are sending strong signals, with predictions ranging from significant increases to drastic reductions, highlighting the uncertainty of the times.

Diego also points to macroeconomic factors, such as the sustainability of fiscal deficits, that could stress market systems. He warns of the risks associated with false diversification and hidden leverage, especially as forces like inflation and AI-driven productivity shifts exert pressure on traditional 40-60 portfolio balances. The potential for accelerated volatility and altered correlations could expose gaps in portfolio diversification, leading to increased reliance on familiar responses such as printing and borrowing, perpetuating a cycle that leads in stagflation.

While the future is uncertain, staying informed and adaptable can offer pathways to successfully weathering the storms of market volatility.

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