Annual Outlook 2026 Economic And Market Outlook

Geopolitical risks have risen, but bond spreads, economic and inflation data, and the US dollar haven’t signaled any major stock market issues. As outlined in our annual outlook themes, investors should also consider potential risks in equity markets. "Both economic growth and inflation should heat up in early 2026 due to OBBBA impacts. Thereafter, however, higher tariff levels and lower immigration will cause growth to slow and inflation to cool. A wide range of views across Fed officials suggests a shallow easing path; we expect the Fed will reduce rates two to three times through 2026. Valuations, earnings and AI look bubbly but are underpinned by solid fundamentals. Investors should prioritize quality and focus on secular, rather than cyclical, themes, like the broadening Everestex reviews AI ecosystem and deregulation in financials." – J.P.

Outlook: Us Stocks And Economy

• Global Chief Investment Officer, Christian Nolting and the CIO team discuss where the global economy and markets may be headed – and what this could mean for investors in the year ahead.
• In The Private Companies Primer, we discuss why high-value companies are staying private longer.
• And then lastly, as Chinese dependence on Taiwan starts to go down, you have to start thinking more about risks to Taiwan, and TSMC and Western access to those chips.
• Credit risk refers to the possibility that the debt issuer will not be able to make principal and interest payments.
• Even with strong fundamentals, AI related stocks saw wide swings in stock performance and high dispersion.

Diversification does not ensure a profit or protect against loss in declining markets. Interest rate cuts normally happen during economic doldrums, when slowing growth is leading to job losses and lower rates are needed to encourage corporate borrowing, spending and hiring. “For now, at least, inflation is taking a back seat to the cooling labor market.” While another cut in December is no sure thing, the CIO expects perhaps three further reductions in the second half of 2026.

Ishares Core Aggressive Allocation Etf (nyse:aoa) Seasonal Chart

And by the way, Oracle is paying the price and Oracle is showing the market what happens when you push too hard to finance this stuff. And by that I mean bonds, loans and leases to finance data centers and other AI-related expenditures. We have a chart in here that looks at the share of capex in dividends financed with debt, rather than cash flow. But okay, that includes a lot of companies that aren’t necessarily very capex intensive. But the hyperscalers are betting the ranch and these numbers are sometimes even hard to believe in until you triple-check them.

Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. The Fund could suffer losses related to its derivative positions because of a possible lack of liquidity in the secondary market and as a result of unanticipated market movements, which losses are potentially unlimited. The Fund’s use of derivatives may reduce the Fund’s returns and/or increase volatility and subject the Fund to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. There is no guarantee that an active fund will meet its investment objective. Technology companies may be subject to severe competition and product obsolescence.

Americans’ Expectations For Interest Rates Are Divided

"Equity markets are broadening, with leadership moving beyond the original AI mega‑cap names to include companies building the physical backbone of AI and those positioned to benefit from broader sector rotation. International and small‑cap equities are increasingly attractive, supported by fiscal stimulus and improving cyclical conditions outside the U.S." – T. Regardless of the target, the prevailing sentiment remains strong, with strategists counting on continued earnings growth, lower interest rates and an increase in stock buybacks. The S&P 500 nearly fell into a bear market following the "Liberation Day" tariff shock in April, while sluggish job growth and sticky inflation complicated the Fed’s interest rate calculus.

• In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.
• These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.
• As shown in the next chart, analysis from the Tax Foundation shows that tariffs have raised overall retail prices by nearly five percentage points relative to the pre-tariff trend.
• Investors face a structurally different income regime in 2026 as markets transition toward an environment where further policy rate cuts are expected.29

In other words, the market’s P/E would be moving down for the so-called right reason (i.e., prices not falling rapidly). If forward earnings estimates continue their upward trek, we see the possibility of multiples continuing to move lower heading into 2026. Taking a back seat has been the forward price/earnings (P/E) ratio. Sectors are based on the Global Industry Classification Standard (GICS®), an industry analysis framework developed by MSCI and S&P Dow Jones Indices to provide investors with consistent industry definitions. As shown via the bolding at the right, eight out of the S&P 500’s 11 sectors have expected growth rates higher than 2025’s.

Stocks: Sectors

Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal.

Midterm Years’ Dull Historical Performance

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Keep learning with webcasts that dig deeper into the themes shaping 2026—from potential market risks to portfolio strategies and new tax considerations. 2026 brings transition—with shifts in global power, domestic politics, and economic crosscurrents reshaping the landscape.

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• Given the recent downturn in U.S. investment in renewables, the CIO believes that adding sufficient capacity in electricity generation to meet demand is likely to require a mix of solar, wind, natural gas and nuclear.
• Preferred stocks are not necessarily correlated with securities markets generally.
• I wish we had a little bit more hard numbers from some of the companies involved, but we drew out the roadmap of what TSMC is pointing to building in Arizona and currently building.
• As shown below, there has been a persistent deterioration in consumer sentiment despite inflation-adjusted GDP reaching new highs each year since the pandemic.
• Despite some worries on Wall Street that the US stock market is overvalued, the analysts don’t expect valuations to move much in either direction in 2026.
• Wall Street expects the bull market to keep running in the year ahead.

The outlook also highlights Europe’s pensions gap as a perhaps overlooked business and investment opportunity. This could open up an opportunity for USD domestic investors – and we highlight the development of attainable housing – as well as retail – as two promising sectors for undaunted investors. So far, cross-border capital flows have held up well – but should the value of the dollar decline by another 10% in 2026, foreign investors may pause.

• Measures job growth and unemployment rate
• All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.
• But regional nuances will come into play here as not all countries are betting on the same power sources.
• Planned investments, particularly in infrastructure and climate neutrality, could trigger a short-term upswing.
• Further disruptions to global trade flows or a renewed escalation of tariff tensions could, for example, temporarily pressure corporate earnings and increase market volatility.

Federal Reserve

Ultimately, resilient consumer spending and another year of double-digit earnings growth fueled a second-half rally. Looking beyond capital and energy inputs, investors and developers will do well to focus on human capital – that is, the labor required to build out data centers – the supply of which is dented by current immigration policy in the US. Looking ahead, the outlook highlights underappreciated dynamics that could shape the next phase of growth in both the US and globally. Today, 99% of stablecoins are backed by the US dollar, creating a concentration risk at a time when the dollar itself is expected to soften further in 2026. In addition, certain policy shifts may have longer term negative impacts for the economy – about which markets remain stubbornly complacent.”

The information on this site does not constitute a recommendation of any investment strategy or product for a particular investor. Institutional Separate Accounts and Separately Managed Accounts are offered by affiliated investment advisers, which provide investment advisory services and do not sell securities. Invesco Capital Management LLC is the investment adviser for Invesco’s ETFs.

• A bar chart is entitled Most direct AI companies are highly profitable.
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• Seek outperformance through active rotation across U.S. equity factors.
• So the first bar on this chart shows that you would have made almost 900% on your money cumulatively by investing in the S&P 500 since January, 2009.