Economists and market strategists widely anticipate continued moderate global economic growth and an upward trend in global stock markets throughout 2026. This outlook is significantly influenced by ongoing developments in artificial intelligence (AI), central bank monetary policies, and geopolitical factors. While projections generally indicate economic resilience, concerns persist regarding inflation, potential shifts in technology valuations, and varying impacts across different economic segments.
Global Market Performance and Projections
Global stock markets opened 2026 with gains, with benchmarks in the UK (FTSE 100) and South Korea (Kospi index) reaching record highs. The FTSE 100 surpassed 10,000 points for the first time, while the Kospi index increased by 2.3%. US stock futures also showed increases on the first trading day, with the technology sector exhibiting initial strength. However, early gains in some US technology stocks did not sustain throughout the initial trading session.
For the full year 2026, investors generally anticipate global equities to rise. UBS projects global equities to increase by approximately 15%, with gains expected in the US, China, Japan, and Europe. Wall Street strategists forecast further advances for the U.S. stock market. Specific projections for the S&P 500 index include:
- UBS: 12.5% gain, reaching 7,700 points by year-end.
- Deutsche Bank: 8,000 points (17% increase).
- Oppenheimer Asset Management: 8,100 points.
- CNBC Market Strategist Survey (average): 7,629 points (11.4% increase).
- J.P. Morgan: 13% to 15% increase.
The UK stock market is also projected for further gains, with analysts forecasting 14% profit growth from the FTSE 100. Total FTSE 100 dividend payments are projected to reach a record £85.6 billion. Ostrum Asset Management expects positive performance from European equity markets, contingent on companies achieving earnings growth.
The Influence of Artificial Intelligence
Artificial intelligence is widely regarded as a primary driver of market performance and economic outcomes in 2026. Investments in AI infrastructure and related companies were substantial in 2025 and are expected to continue. Optimism regarding AI's potential has contributed to increased buying of technology-related shares globally. UBS forecasts global AI capital expenditure to reach approximately $4.7 trillion by 2030. Potential shifts in AI capital expenditure from chatbots to agentic AI, physical AI, and AI video have been noted. China's tech sector, driven by AI, is highlighted as a significant global opportunity, with anticipated 37% earnings growth in 2026.
However, investor focus also includes the performance of major AI companies relative to their valuations and the delivery of anticipated productivity growth. Some investors have expressed caution regarding the growth of AI-related stocks, and a Deutsche Bank survey indicated that 57% of investors consider a decline in technology valuations or reduced enthusiasm for AI as a primary market risk. Concerns exist regarding potential financial fragilities due to interconnected relationships among AI companies and their partners if market sentiment shifts.
Economic Projections
The global economy is largely expected to avoid a downturn in 2026, with forecasters anticipating moderate growth and resilience. Goldman Sachs forecasts 2.8% global growth, while UBS anticipates an acceleration in the global economy, supported by improved business and consumer confidence and additional fiscal stimulus in some advanced economies. Kathleen Brooks of XTB noted a low probability of a global recession.
For the U.S. economy, a strong performance is projected, attributed to factors such as reduced tariff impact, tax cuts from the "One Big Beautiful Bill Act," and favorable financial conditions. Goldman Sachs forecasts U.S. GDP growth at 2.6%. ING maintains a positive outlook for the U.S., predicting looser financial conditions will support growth.
Many analyses suggest that economic growth will remain "K-shaped," benefiting higher-income individuals and AI-related sectors more significantly, while lower-income segments may face ongoing challenges. J.P. Morgan estimates a 35% probability of a global recession in 2026, while other institutions like Bank of America express optimism, considering concerns about an "imminent AI bubble" to be "overstated."
Inflation and Affordability Concerns
Inflation has decreased since its 2022 peak but remains elevated. The Consumer Price Index (CPI) stood at 2.7% in November, exceeding the Federal Reserve's annual target of 2%. The Federal Reserve's December forecast projects inflation to cool to approximately 2.4% in 2026, a level that would still be above its target.
Concerns persist among Americans regarding the cost of living. A December CBS News poll indicated that 7 out of 10 Americans reported difficulties covering expenses for food, housing, and healthcare. Utility costs and home heating costs have reportedly risen. A Bankrate survey indicated that about one-third of Americans expect their financial situation to worsen in the coming year, primarily due to inflation concerns. Federal Reserve Chair Jerome Powell stated on December 10 that sustained periods where nominal wages exceed inflation are necessary for households to perceive improved affordability.
Central Bank Policies and Interest Rates
The Federal Reserve operates with a dual mandate of maintaining low inflation and low unemployment. Money markets currently anticipate two U.S. interest rate cuts by December 2026. The Federal Open Market Committee (FOMC) indicated one additional rate cut for 2026 in December, though some economists suggest the possibility of further cuts if the labor market decelerates.
President Trump has advocated for substantial reductions in the benchmark rate. With Chair Powell's term concluding in May, President Trump is expected to nominate a new Federal Reserve chair. Concerns exist regarding a new Federal Reserve chair advocating for substantial interest rate reductions, which could lead to market disruption, and market participants will monitor any perceived reduction in Fed independence.
For the UK, one rate cut by the Bank of England is fully factored into market expectations for 2026, though some economists forecast at least two reductions. Analysts suggest that UK government bonds (gilts) could perform strongly if the Bank of England implements interest rate reductions at a faster pace than other central banks.
Key Market Risks and Divergent Forecasts
Identified market risks for 2026 include:
- A decline in technology valuations or reduced enthusiasm for AI.
- A potential loss of Federal Reserve independence.
- A crisis within the private capital market.
- Reacceleration of inflation or resurfacing debt issues.
- A fragile job market or equity market concerns regarding AI-related revenues.
- Increased trade barriers and potential trade wars.
- Sluggish non-tech demand and a weakening labor market.
While a consensus on avoiding a severe economic downturn is observed, significant divergence exists among professional economic forecasters regarding specific projections for GDP growth rates, unemployment, and inflation trends. For instance, the average of the top 10 GDP growth rate forecasts in one survey was 2.5%, compared to 1.2% for the bottom 10. Some economists, like Dario Perkins of TS Lombard, propose a potentially stronger economic rebound than current consensus, which could lead to increased inflation and a re-evaluation of monetary policy. Conversely, William Davies of Columbia Threadneedle Investments noted accumulating risks, suggesting a challenging environment for policymakers and investors. Investor Michael Burry has also expressed a less optimistic view.
Commodity Forecasts
Oil prices in 2026 are expected to be influenced by geopolitical events and projections of excess supply, which could exert downward pressure. Oxford Economics forecasts Brent crude oil at $58 per barrel at the end of 2026, decreasing to $55 in 2027. Copper prices may increase due to potential shortages; Deutsche Bank anticipates a deficit in the copper market in 2026, leading to peak prices in the latter half of the year.
Housing and Job Market (U.S.)
U.S. housing affordability is anticipated to see modest improvements in 2026, with mortgage rates expected to remain within the low 6% range. Home prices are projected to increase at a slower rate than incomes. A Realtor.com analysis forecasts a decline in home prices in approximately two dozen major U.S. cities.
Hiring activity could increase in 2026, with Goldman Sachs projecting average payroll gains to rise to 70,000 per month and wages to climb by 2.3%. However, some economists caution that the job market may remain relatively stable as companies increasingly utilize artificial intelligence for productivity.
2025 Market Performance
The U.S. stock market concluded 2025 with strong annual gains, with the S&P 500 setting 39 record highs and closing 16.4% higher. The Nasdaq gained 20.4%, and the Dow finished 13% higher. These gains were largely attributed to investor confidence in artificial intelligence and sustained economic growth. Market volatility was noted throughout the year, including periods influenced by tariff announcements. The S&P 500, Dow, and Nasdaq composite concluded 2025 with four consecutive days of losses.