Investing trends for 2026 : What the analysts are watching out for
Investors started the year with worries about Trump tariffs and taxes but where will markets go in 2026?
It has been a good year to be an investor, with stock markets hitting record highs.
Technology stocks, which have been some of the top picks for DIY investors, continued to drive the US markets, while even the more traditional companies in the FTSE 100 helped the British blue chip index soar.
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Will the AI bubble burst?
The continued rise of artificial intelligence (AI) and technology stocks, particularly the Magnificent 7 such as Nvidia, may have dominated stock market performance for much of 2025 but attention is shifting from a boom to a bubble in the AI sector.
Lindsay James, investment strategist at Quilter, said: “Despite continued strong earnings growth expected from AI in 2026, concerns are growing that not only are some of these companies priced for perfection but also that they are becoming more capital-intensive businesses, with only the most optimistic of forecasts justifying the scale of the capex spend.”
James said attention is now turning from the AI builders and hyperscalers to the ‘downstream’ adopters such as financial services companies, healthcare providers and companies that can actually put the technology to good use.
Jason Hollands, managing director of Bestinvest, added that while the debate over whether we are in an AI bubble and when it might burst is also going to rumble on, bubbles can balloon for quite some time.
He said: “The dotcom bubble lasted five years before bursting. AI excitement began three years ago with the launch of ChatGPT, so the real question is whether we are still in the foothills, midway up the mountain or near the peak.”
Politics
Political uncertainty in the US and UK could weigh on economic growth and stock market prospects.
US president Donald Trump is likely to continue to exert his influence over the world, which could have an impact on tariffs and geopolitical tensions including the Russia and Ukraine conflict as well as in the Middle East.
The US mid-term elections in November 2026 could also have political and economic ramifications.
Hollands said: “The Republican party is at serious risk of losing its narrow majority in the House of Representatives. President Trump will therefore have a fight on his hands to avoid being reduced to a lame duck President on domestic policy. We can expect a renewed focus on the economy and cost of living issues.”
He highlights that the tax cuts in the One Beautiful Bill Act will start kicking in next year and in May Jerome Powell’s tenure as chair of the Fed ends, a point at which President Trump may look to appoint a ‘dovish’ replacement.
Another possibility is that the Supreme Court will rule that tariffs levied under the auspices of the International Emergency Economic Powers Act were not legal, which could result in compensation to businesses that are suing the US government. Such a move would have a stimulus effect, Hollands said.
He added: “The read across for markets could be the US economy running hotter, continued softness in the Dollar and it remains hard to see the case for owning longer dated US bonds,”
In the UK, both Labour and the Conservatives are braced for steep losses in the May council and devolved assemblies’ elections.
Hollands said: “It is not without possibility we could see changes in the inhabitants of both No. 10 and 11 Downing Street, with Keir Starmer and Rachel Reeves hanging on by a thread. That might see a further leftward shift – so yet more tax rises could be coming down the line.”
Go global
Chancellor Rachel Reeves may be hoping to encourage more investment in UK stocks but analysts are backing more global strategies, particularly amid concerns about US valuations.
James said: “Europe is leading the pack with expectations for 14% earnings growth in the next 12 months, as spending on infrastructure and defence moves from the policy level to order books.
“Japan is also looking more promising with a decade of corporate governance reforms now paying off. Companies continuing to focus on capital efficiency, improving dividends and buybacks, whilst the end of the deflationary era is leading to healthy wage growth, higher consumption and monetary normalisation, making life easier for financial companies in particular.”
After a long period in the doldrums, emerging markets could rise again in 2026.
Salaman Ahmed, global head of macro and strategic asset allocation at Fidelity International, said: “Any depreciation of the dollar should be a boon to emerging markets. Emerging markets assets are one of our central convictions for 2026.
“Equities in places like South Korea and South Africa are re-rating higher, with improving fundamentals and attractive valuations relative to the rest of the world. China looks compelling for 2026 too with its ongoing policy support creating specific opportunities – see our Asia outlook for more on this.
“Likewise, emerging markets local currency debt, particularly in Latin America, offers attractive real yields and steep curves.
Tom Wilson, head of emerging market equities, Schroders, added “Emerging market equities have performed strongly in 2025, outperforming global equities.
“We are inclined to anticipate US dollar depreciation on a structural basis would provide a tailwind to emerging markets relative equity performance as it eases financial conditions and has a positive translation effect, benefitting dollar-nominal growth and earnings. This may combine with attractive relative valuations, and a potential stabilisation or improvement in relative return on equity.”
Go for gold
Gold hit record highs this year, peaking at $4,361 in October. The question is whether it can continue its gains amid interest rate cuts and hit the $5,000 mark in 2026.
Hollands said: “With worries about the US debt burden, dollar weakness and emerging market central banks diversifying their exposure beyond US treasuries, I believe gold can continue to play a useful role in portfolio diversification next year and beyond.”
Bonds
Bonds have enjoyed a resurgence in recent years amid a flight to safety by investors and high interest rates.
Government bonds, gilts, have also been boosted in recent months due to concerns about tax and high inflation.
But overall performance has been poor this year and interest rate cuts along with slowing inflation could reduce the attractiveness of new debt.
Hollands added: “Concerns about government debt burdens continue, and this will impact the wider fixed income universe. Sticky inflation, still well above central bank targets, creates some uncertainty as to how much further rates will be cut.
“It therefore makes sense to focus on shorter-duration bonds within any fixed income component of a portfolio, as well as considering alternative ways to diversify a portfolio beyond equities such as absolute return funds.”
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