Trump's tariffs and taxes worried investors at the beginning of the year, but what will happen to the markets in 2026?
This year has been good for investors, with stock markets reaching all-time highs.
While even the more conventional companies in the FTSE 100 contributed to the rise of the British blue chip index, technology stocks, which have been among the best choices for do-it-yourself investors, continued to propel the US markets.
One of the top performers in 2025 was the FTSE 100, which for the first time crossed the 9,000 threshold.
For the first time since 2019, Fidelity International's research reveals that all of the major regions produced double-digit gains in 2025.
This is true even though investor decisions have been dominated for the majority of this year by worries about Trump tariffs, geopolitical tensions, high inflation, tax changes, and interest rate cuts.
Therefore, 2026 has a lot to live up to, particularly since the Fed and the Bank of England are now anticipated to be in a cycle of interest rate cuts, and worries about an AI bubble that might affect the US and international markets are starting to surface.
Investment experts are anticipating the following in 2026.
Is the AI bubble going to pop?
For a large portion of 2025, the performance of the stock market was dominated by the ongoing growth of artificial intelligence (AI) and technology stocks, especially the Magnificent 7 like Nvidia. However, the focus is now shifting from a boom to a bubble in the AI sector.
Investment strategist Lindsay James of Quilter stated: "Even though strong earnings growth is anticipated from AI in 2026, worries are growing that some of these companies are priced for perfection and that they are becoming more capital-intensive businesses, with only the most optimistic forecasts justifying the scale of the capex spend. The "
According to James, focus is now shifting from AI developers and hyperscalers to downstream adopters like financial services firms, healthcare providers, and businesses that can truly benefit from the technology.
The argument over whether or not we are in an AI bubble and when it might burst will continue, according to Jason Hollands, managing director of Bestinvest. However, bubbles can swell for a long time.
He declared: "The .com bubble burst after five years. The real question is whether we are still in the foothills, halfway up the mountain, or close to the top. The excitement surrounding AI started three years ago with the introduction of ChatGPT. The "
Legislation.
Economic growth and stock market prospects may be impacted by political unpredictability in the US and the UK.
US President Donald Trump is probably going to keep using his power to influence the world, which could have an effect on tariffs and geopolitical tensions, such as those in the Middle East and the conflict between Russia and Ukraine.
The November 2026 US midterm elections may also have an impact on politics and the economy.
According to Hollands, there is a significant chance that the Republican Party will lose its slim majority in the House of Representatives. As a result, President Trump will need to fight to avoid becoming a lame duck in terms of domestic policy. We should anticipate a renewed emphasis on the cost of living and the economy. A "
He points out that the One Beautiful Bill Act's tax cuts will begin to take effect next year and that Jerome Powell's term as Fed chair expires in May, at which point President Trump may try to appoint a dovish successor.
Another possibility is that the Supreme Court will decide that tariffs imposed under the International Emergency Economic Powers Act were illegal. In that case, companies suing the US government may receive compensation. According to Hollands, such an action would have a stimulus effect.
"The read across for markets could be the US economy running hotter, ongoing softness in the dollar, and it remains hard to see the case for owning longer dated US bonds," he continued.
In the UK, the May elections for the council and devolved assemblies are expected to result in significant losses for both Labour and the Conservatives.
Hollands stated: "We may observe changes in the residents of both No. 10 and 11 Downing Street, with Rachel Reeves and Keir Starmer barely hanging on. In the future, there may be more tax increases due to a potential leftward shift. A "
Go worldwide.
Although analysts are supporting more global strategies, especially in light of worries about US valuations, Chancellor Rachel Reeves may be hoping to promote more investment in UK stocks.
"As spending on infrastructure and defense moves from the policy level to order books, Europe is leading the pack with expectations for 14 percent earnings growth in the next 12 months," stated James.
"With ten years of corporate governance reforms now showing results, Japan also appears more promising. While the end of the deflationary era is bringing about healthy wage growth, increased consumption, and monetary normalization, which makes life easier for financial companies in particular, businesses are still concentrating on capital efficiency, increasing dividends, and buybacks. A "
In 2026, emerging markets may rebound after a protracted period of decline.
Salaman Ahmed, global head of macro and strategic asset allocation at Fidelity International, stated: "Emerging markets should benefit from any dollar depreciation. One of our main beliefs for 2026 is the importance of emerging market assets.
With better fundamentals and appealing valuations in comparison to the rest of the world, stocks in countries like South Korea and South Africa are re-rating higher. With its continued policy support generating particular opportunities, China appears promising for 2026 as well. For more on this, see our Asia outlook.
Similarly, local currency debt in emerging markets, especially in Latin America, has steep curves and appealing real yields.
"Emerging market equities have performed strongly in 2025, outperforming global equities," added Tom Wilson, Schroders' head of emerging market equities.
"We are inclined to believe that a structural depreciation of the US dollar would boost the relative equity performance of emerging markets because it improves financial conditions and has a positive translation effect that benefits dollar-nominal growth and earnings. This could be coupled with favorable relative valuations and a possible improvement or stabilization of the relative return on equity. A "
Go for the gold.
This year, gold reached record highs; in October, it peaked at £4,361. The question is whether it can reach £5,000 in 2026 while maintaining its gains in the face of interest rate reductions.
Hollands stated: "I think gold can continue to play a useful role in portfolio diversification next year and beyond, given concerns about the US debt burden, dollar weakness, and emerging market central banks diversifying their exposure beyond US treasuries." The "
Bonds.
Due to rising interest rates and investors' flight to safety, bonds have seen a comeback in recent years.
Concerns about taxes and high inflation have also led to an increase in government bonds, or gilts, in recent months.
However, this year's overall performance has been subpar, and interest rate reductions combined with a slowdown in inflation could make new debt less appealing.
Hollands went on: "The larger fixed income universe will be impacted by ongoing worries about government debt burdens. There is some uncertainty about how much more rates will be lowered due to sticky inflation, which is still significantly higher than central bank targets.
Therefore, it makes sense to concentrate on shorter-duration bonds within any fixed income component of a portfolio and to think about other ways to diversify a portfolio outside of stocks, like absolute return funds. The "
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