2026 Global Market Outlook: Equities Surge, Dollar Fades & Central Banks Diverge

The 2026 investment environment is shaping up to be one of high contrast. A surge in AI-related capital expenditures is expected to act as the primary growth engine, concentrating returns in technology and adjacent sectors, while non-AI sectors, consumer demand, and employment risk further divergence. J.P. Morgan estimates U.S. and global recession odds at approximately 35%, largely driven by soft labor market conditions and muted business sentiment. Still, robust balance sheets, supportive fiscal stimulus, and wide adoption of AI are seen as offsetting tailwinds.

On monetary policy, the forecast is for most developed markets to either stay on hold or begin easing in the first half of the year. In the U.S., rate cuts of about 50 basis points by mid-2026 are anticipated, though constrained by persistent inflation and labor market soft spots. In contrast, Japan may see modest rate hikes under its new fiscal regime, while Europe benefits from reduced policy headwinds and stronger credit impulse.

Equity markets are distinctly bifurcating: AI beneficiaries—spanning tech, utilities, healthcare, logistics—are expected to outperform broadly, supporting record concentration in indices, especially in the U.S. European and emerging markets are projected to see gains via improved earnings, attractive valuations, and governance reforms, especially in LatAm. However, risks such as stretched valuations in AI, policy uncertainty, weaker consumption, and global recession scenarios temper optimism.

Through the credit lens, high-grade spreads in the U.S. are anticipated to creep wider (≈110 basis points), limiting excess return, with high yield offering somewhat more return potential but with higher default risks. European credit is seen as holding tight where recession fears remain latent, but vulnerable to inflation surprises and fiscal stress.

In commodities, gold is the standout, driven by elevated central bank demand and geopolitical uncertainty; the forecast sees it averaging ~$4,753/oz in 2026 and rising toward $5,000/oz Q4. Oil faces supply excess against demand, suggesting vulnerability unless supply cuts are instituted. Agricultural markets sit near tight supply‐use ratios, raising volatility risks.

Currency markets are projected to feature a modest weakening of the U.S. dollar, supported by European growth and fiscal expansion. EUR/USD is expected to reach ~1.20, while GBP and JPY face more mixed outlooks, challenged by structural issues such as fiscal deficits, yield differentials, and domestic headwinds.

Investor strategy in this polarized landscape requires nimbleness. Key implications include overweighting AI/tech-adjacent equity sectors, favoring non-U.S. equities where valuation is favorable, selectively adding duration in a steepening yield environment, and hedging inflation and USD risks while maintaining exposure to high quality gold and resilient credit. Concentration risks argue for diversification and active management, particularly across regions and sectors. Open questions involve the timing and depth of rate cuts, potential inflation surprise around core CPI in the U.S., whether AI gains spread beyond stylized fact patterns, and how emerging markets respond to external shocks under these stressed conditions.