Anika Sidhika: What macroeconomic or market scenarios are likely in 2026?

Toni Meadows: “Equity markets have been dominated by an AI gold rush in 2025 and this leaves valuations looking expensive by historical comparison. After years of US dominance, the equity market leadership in global indices is highly concentrated both in terms of regional split and the top 10 stocks within the US market. In historical terms, this usually leads to a major rotation or reversal at some point, but the question remains ‘is it different this time due to the unprecedented scope of the technological revolution, driven by data, bandwidth and computing power?’ Thus far, US earnings have surprised on the upside and investors have cheered every AI related deal. Even second derivative trades have done well, as investors seek exposure to companies that are positioned to benefit from the massive AI infrastructure build-out currently underway.

“In support of this market environment, economic growth has been sufficient, if not spectacular, and government policy has been supportive. Interest rates have been cut by the western central banks, even as inflation has proven to be ‘sticky’. Given the high stock of outstanding debt and budget deficits – the size of which are usually more suited to a recession than slow growth environments, there is little room to manoeuvre with regard to fiscal policy support. In fact, the world should probably get used to periodic volatility driven by changing sentiment in the debt markets. We saw this with the market reaction to ‘Liberation Day’ in April when Trump unveiled the extent of his tariff policy. Investors are currently sanguine about the impact of tariffs on economic growth and inflation, and we would not expect that to change in 2026. However, given the combative style of the US President in negotiations of any kind, it is likely there will be policy-induced volatility in markets at some point in 2026.

“High starting valuations both in equity and debt markets, where spreads are tight, will mean that investors face a wall of worry. On the one hand, fear of missing out will drive prices higher as investors look to the long-term horizon and the benefits of AI on corporate earnings. But in the short-term, much of the large sums of money being spent on AI and its infrastructure will not see a return that justifies the outlay. Also, the interconnected nature of the relationships and spending between the large US tech names increases the potential impact of any disappointments along the way. So, we expect there to be periods of volatility in 2026, and beyond, as investors grapple with the seemingly late cycle characteristics of global markets, framed within the transformational potential of Artificial Intelligence.

“One key area to monitor next year will be employment. Thus far, employment conditions have remained tight with headline unemployment rates low, but there are signs developing that a softening is occurring. It probably does not seem like a buoyant employment environment for some key segments of the economy, such as entry level job seekers and recent graduates. The issue with this is that many of those students are the intellectual property (ideas) generators of the future so if they struggle to get on to the employment ladder there could be a significant longer-term impact on the productive capacity of economies. This could ultimately negate some of the ‘benefit’ of AI, especially as companies embracing technology still rely on human earned capital. There could come a period, next year or beyond, where lack of employment opportunities impact consumption patterns and economic growth prospects. If investors have, at that point, exuberantly embraced a tech-based investment cycle by rewarding the share prices of a small number of companies then there could be a correction.

“The key for governments and monetary authorities is to help investors to navigate the risks in a balanced manner, though history shows this is easier said than done.”

AS: Which investment themes, sectors, or strategies do you expect to gain traction next year?

TM: “Stay invested for the long-term outcome but look into methods of protecting gains in portfolios should there be volatility. Also try to find areas where it is possible to harvest returns without taking undue risk. Hybrid bonds might be an area to look into as the issuing companies are investment grade, but the characteristics of the bonds mean that a higher yield is available, and the companies are incentivized to issue them as they have a beneficial impact on their cost of capital.”

AS: How do you see the wealth management industry evolve over the next 3/5 years to meet changing client expectations and industry dynamics?

TM: “Wealth management will, like all major service industries, have to rise to the challenge of using technology to the benefit of clients. This will take the form of improved efficiency in workflows such as report production, documentation and communication. The key will be integrating technology into a human-led relationship with clients, that through its efficiency and speed of delivery, leads to clear decision-making – enhancing the client’s goals whilst maintaining a trusted relationship with the client.”