In many respects, 2025 was a highly unusual and stressful year given the cross-currents of global trade disruptions, wars in the Middle East and Ukraine and political turmoil in France and the UK – all topped off with the longest US government shutdown on record. It is therefore all the more surprising what a great year it was for financial markets, particularly equities.
So what could 2026 hold in store? Our base case is it will turn out to be another reasonable year – perhaps not as strong for markets and with some broadening out, but generally benign and well-behaved. There are of course some nuances and here it is useful to provide a bit more detail. It is always helpful to start with thoughts on the global macro situation.
The US looks likely to continue to lead developed world growth, with tailwinds from a low oil price, monetary policy easing and fiscal stimulus via the One Big Beautiful Bill Act. There is even potential for the US economy to surprise on the upside next year.
Other developed economies will likely be less buoyant than the US – partly because they are structurally more rigid. Some important countries, such as Germany, will be expanding fiscally; others – most obviously, France –are facing fiscal constraints and this represents a risk to bond markets.
Stronger fiscal discipline
Many emerging markets look interesting – both with respect to the macro and market prognosis. On the macro side, many emerging markets now exhibit much stronger fiscal discipline than they did historically, with debt metrics that would be the envy of most developed economies.
At the same time, real interest rates are generally much higher in emerging markets than in developed markets. That combination of fiscal flexibility, alongside a potential easing in monetary policy, presents interesting opportunities in both fixed income and equity markets in the so-called developing world.
“A huge consideration for 2026 and beyond is the massive investment in energy infrastructure that will be required to satisfy the needs of the AI industry.
Picks for ‘26 – read more
Artificial intelligence: Stuart Gray, WTW – Potential v FOMO – the two sides of the AI coin
Global growth: Daniel Murray, EFG Bank – Global risks and opportunities for the year ahead
Healthcare: James Douglas, Polar Capital – Is healthcare the smart complement to tech?
Luxury brands: Sean Koung Sun, Thornburg IM – Scarcity is engine of long-term value creation
US smallcaps: Bill Hench, First Eagle Investments – US smallcaps look poised for a comeback
One topic that has been a hot theme in markets for a few years, of course, is artificial intelligence and no outlook would be complete without a few comments on the subject. AI is here to stay and should exhibit strong growth for many years to come.
A huge consideration here is the massive investment in energy infrastructure that will be required to satisfy the needs of the AI industry. How this investment is funded should be a major point of focus for markets in 2026 and beyond.
As AI develops, it is very likely to have a growing influence on robotics and agentic applications – something that will be impactful across multiple economic sectors, including the military, health, education and finance. The US and China are expected to continue to lead the AI race globally, creating an additional point of tension between the two superpowers but also a potential area of co-operation.
Three risks to watch
Other geopolitical risks are expected to subside somewhat next year but to remain elevated relative to history. Three risks that spring to mind in particular are tariffs, labour market disruption and the US mid-term elections.
The impact of tariffs has so far been limited but it is possible there will be a delayed reaction that sees tariffs feed through to greater economic disruption as 2026 progresses. If, for example, companies start to pass through tariff costs to prices this would restrain real incomes and hence be a drag on consumption.
Separately, there is a risk that labour market dislocation related to AI is so severe that it causes significant short-term pain in some sectors, with possible economy-wide effects. Finally, there is significant uncertainty associated with the US mid-terms, which will build as election day approaches next November. None of these risks are our base case but it is prudent to bear them in mind.
It would be great to have a crystal ball that allowed us to see with certainty what will happen next year but unfortunately – even with all the technological advancements of AI – such a tool does not exist. It is therefore inevitable the world will not turn out exactly as predicted.
Nonetheless it is helpful to think about potential areas of opportunity and also what could go wrong. Overall, we remain relatively relaxed about the prospects for 2026 – with the usual caveats about diversifying risk both across and within asset classes.
Daniel Murray is deputy CIO and global head of discretionary portfolio management at EFG Bank
