Investors expect global stock markets to keep rising in 2026, despite fears that the AI bubble could burst, and anxiety about chaos engulfing the US central bank.
Wall Street strategists broadly expect the S&P 500 share index of US-listed companies to continue to rise over the next 12 months, but said it could be a volatile year if geopolitical tensions increase and inflation fails to fall.
Top threats: AI fears, Fed turmoil and private credit
A poll of 440 investors, economists and analysts by Deutsche Bank found that 57% believe a plunge in technology valuations, or waning enthusiasm in AI, is a top risk to market stability in 2026.
Investors have never before been in such agreement about the biggest market risk for a year ahead than they are now: Deutsche Bank survey. “AI/tech bubble risk towers over everything else.” The next biggest risks: a loss in Fed independence and crisis in private credit. pic.twitter.com/RO4q1IAwZP
— Lisa Abramowicz (@lisaabramowicz1) December 18, 2025
The second biggest fear is that Donald Trump appoints a new Federal Reserve chair who pushes for aggressive cuts to interest rates, causing market turmoil.
The US president said on 17 December he would name the next Fed chair soon, and that it would be someone who believes in lower interest rates “by a lot”.
Respondents third most significant concern was a crisis in the private capital market – such as those seen in private equity, venture capital and private debt.
A poll of fund managers by the wealth management company Quilter found that private credit market stress is the most underappreciated risk, despite warnings from global policymakers about dangers lurking in the shadow banking sector.
The Swiss bank UBS has advised clients that markets could “could face new challenges” if AI progress slows, inflation picks up again, or debt problems resurface.
Will the UK stock market keep rising?
After a bumper 2025 for the UK stock market and the FTSE 100 blue-chip index crossing the 10,000-point threshold for the first time on Friday, analysts and retail investors are confident of more gains in 2026.
The AJ Bell investment director, Russ Mould, said the omens are now quite good, with analysts forecasting 14% profit growth from the FTSE 100 in 2026. Total FTSE 100 dividend payments are expected to set a new record of £85.6bn in 2026, Mould reported, finally eclipsing the peak of £85.2bn set in 2018.
A poll by the trading company eToro found that UK retail investors are optimistic about the year ahead, with 53% confident the current bull market will continue throughout 2026.
UK bonds could do well
Robert Timper, the chief global fixed income strategist at BCA Research, said it could be a strong year for UK government bonds, known as gilts, if the Bank of England cuts interest rates more rapidly than other central banks.
He predicted: “UK gilts will go from second to the best-performing bond market [in 2026], backed by a dovish BoE and reduced fiscal concerns.”
Global markets forecast to rise
UBS has predicted that “supportive economic conditions should underpin global equities, which are expected to rise by about 15% by the end of 2026”, with gains likely in the US, China, Japan and Europe.
Double-digit gains are expected on Wall Street. Under UBS’s base case scenario, the US S&P 500 index would end 2026 at 7,700 points – a gain of 12.5%.
Deutsche Bank has a year-end S&P 500 target of 8,000 points (+17%), while Oppenheimer Asset Management is even more bullish, forecasting an 8,100-point year end.
According to the consultancy Oxford Economics, above-consensus growth and below-consensus headline inflation in the US next year will lift US stocks.
UBS also recommends Chinese stocks. “China’s tech sector stands out as a top global opportunity,” it said. “Strong liquidity, retail flows and earnings – expected to rise to 37% in 2026 – should sustain momentum for Chinese equities.”
Ostrum Asset Management predicts European equity markets will perform positively in 2026, driven by a return to earnings growth. However, it cautioned that this is dependent on companies’ ability to deliver against high expectations.
But the investor Michael Burry, featured in the film The Big Short, doesn’t share the optimism, saying he sees several “bad years ahead”.
Artificial intelligence impact
After a year in which hyperscalers invested hundreds of billions in AI infrastructure, the technology sector is likely to shape long-term macroeconomic outcomes in 2026.
Investors will be watching to see whether big AI companies justify their huge valuations – after strong stock market gains in 2025 – and deliver the productivity growth that policymakers are hoping for. If not, valuations could suffer.
Though many argue AI investment remains at the early-adoption stage, there are concerns that some players are entwined with their own suppliers and partners. That circularity blurs the true financial picture, creating fragilities that could splinter if AI optimism fades.
While much of the AI focus in 2025 was on chatbots, the UBS chief investment officer, Mark Haefele, said capital expenditure in the sector could focus on agentic AI (systems or “agents” that can carry out knowledge work with little or no human prompting), physical AI (such as robots and self-driving vehicles) and AI video.
UBS predicts about $4.7tn will be spent on AI capital expenditure globally by 2030 – roughly double the $2.4tn already planned, based on more than 40 announcements this year.
The economic outlook
The world economy is expected to avoid a downturn in 2026, despite the rise in trade barriers in 2025. Kathleen Brooks, the UK research director at the broker XTB, predicts it will remain resilient, with little chance of a global recession.
Goldman Sachs analysts have told clients that the main risks to global growth in 2026 are that a fragile job market sparks recession fears, or the equity market questions the value of AI-related revenues.
Goldman anticipates “sturdy global growth of 2.8% in 2026”, with the US economy forecast to “outperform substantially” thanks to reduced drag from tariffs, tax cuts and easier financial conditions. It also expects China to hold up well, as strong exports outweigh sluggish domestic demand.
UBS believes the global economy is poised to accelerate in 2026, helped by improved business and consumer confidence and extra fiscal stimulus in some advanced economies.
The Dutch bank ING said it is “still relatively upbeat” about the US economy, expecting looser financial conditions to support growth in 2026.
Deutsche Bank suggested the US midterm elections, due in November, could influence policy earlier in the year as Republicans try to avoid losing seats.
Commodities
The price of oil will be highly sensitive to geopolitical developments during 2026, such as progress towards ending the Russia-Ukraine war and conflict in the Middle East. Forecasts of a supply glut could also push prices down.
The advisory company Oxford Economics predicts Brent crude oil will end 2026 at $58 a barrel, down from $60 last month, and drop further to $55 in 2027.
MeCopper prices could be pushed up by shortages. Deutsche Bank predicts a “clear deficit” for the copper market in 2026, leading to peak prices in the second half of the year.
Central banks and rates
The money markets are pricing in two US interest rate cuts by December 2026, though this forecast is dependent on the outlook for the US economy and Trump’s choice for the next Fed chair.
Richard Carter, the head of fixed interest research at the wealth manager Quilter Cheviot, said markets would be “on high alert for any erosion of Fed independence”.
In the UK, one rate cut in 2026 is fully priced in, but several economists predict the Bank of England will ease rates at least twice.
What could go wrong?
Experienced City voices know that the market consensus will inevitably be wrong – the question is in which direction.
Dario Perkins, an economist at the forecasters TS Lombard, suggested the picture could be stronger than expected.
“The consensus: 2026 will be just like 2025,” he told clients. “Steady global growth, a bit of disinflation, and monetary policy returning to neutral, where it stays indefinitely. Zzzzz.”
He continued: “Where could the consensus be wrong? Our bet is on a stronger rebound in activity, which stokes inflation and starts a debate [in the second half of the year] about monetary tightening.”
But William Davies, the global chief investment officer at Columbia Threadneedle Investments, said “the risks of a misstep are accumulating”.
He warned: “Growth has proven surprisingly durable, inflation has moderated (albeit unevenly), and markets have continued to climb. But beneath the surface imbalances are building. We believe the coming year will be defined by how successfully policymakers and investors can navigate the narrowing path.”
