Investors expect global stock markets to continue rising in 2026, despite fears of an AI bubble bursting and concerns about chaos at the US central bank.
Wall Street strategists broadly expect the S&P 500 stock index of US-listed companies to continue rising over the next 12 months, but said it could be a volatile year if geopolitical tensions rise and inflation fails to ease.
Top threats: AI fears, Fed turmoil and private debt
A survey of 440 investors, economists and analysts by Deutsche Bank found that 57% believe a decline in technology valuations, or waning enthusiasm for AI, is a top risk to market stability in 2026.
Never before have investors agreed more than now about the market’s biggest risk for the year ahead: Deutsche Bank survey. “The risk of an AI/tech bubble outweighs everything else.” The next biggest risks: reduced Fed independence and a crisis in private credit. pic.twitter.com/RO4q1IAwZP
– Lisa Abramowicz (@lisaabramowicz1) 18 December 2025
The second biggest fear is that Donald Trump appoints a new Federal Reserve Chairman who pushes for aggressive interest rate cuts, causing market turmoil.
The US President said on December 17 that he would soon announce the next Fed Chairman, and that it would be someone who believes in “very low” interest rates.
The third most important concern of respondents was the crisis in private capital markets – as seen in private equity, venture capital and private debt.
A survey of fund managers by wealth management company Quilter found that private credit market stress is the most underappreciated risk, despite warnings from global policymakers about the dangers lurking in the shadow banking sector.
Swiss bank UBS advised clients that the market “could face new challenges” if AI progress slows, inflation rises again, or debt problems re-emerge.
Will the UK stock market keep rising?
After a bumper 2025 for the UK stock market and the FTSE 100 blue-chip index breaching the 10,000-point mark for the first time on Friday, analysts and retail investors are confident of more gains in 2026.
AJ Bell investment director, Russ Mould, said the signs are now quite good, with analysts forecasting 14% profit growth for the FTSE 100 in 2026. Total FTSE 100 dividend payouts are expected to set a new record of £85.6 billion in 2026, Mold reported, ultimately surpassing the peak of £85.2 billion set in 2018.
A survey by trading company eToro found that UK retail investors are optimistic about the year ahead, with 53% confident that the current bull market will continue throughout 2026.
UK bonds may perform well
Robert Timper, 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 quickly than other central banks.
He predicted: “UK gilts will move from second place to best-performing bond market (in 2026), supported by a soft BoE and fewer fiscal concerns.”
Forecast of rise in global markets
UBS predicted that “supportive economic conditions should support global equities, which are expected to grow about 15% by the end of 2026”, with the US, China, Japan and Europe likely to gain.
Wall Street expects double-digit gains. Under UBS’s base 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 optimistic, and forecasts a year-end high of 8,100 points.
Above-consensus growth and below-consensus headline inflation next year will lift US stocks, according to consultancy Oxford Economics.
UBS also recommends Chinese stocks. “China’s technology sector stands out as a top global opportunity,” it said. “Strong liquidity, retail flows and earnings – expected to grow by 37% in 2026 – should maintain momentum for Chinese equities.”
Ostrum Asset Management estimates that European equity markets will perform positively in 2026, driven by a return to earnings growth. However, it cautioned that this is dependent on the companies’ ability to deliver results against high expectations.
But investor Michael Burry, featured in the film The Big Short, doesn’t share the optimism, saying he sees several “bad years” ahead.
artificial intelligence effect
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 hefty valuations – following strong stock market gains in 2025 – and deliver the productivity growth that policymakers are expecting. If not, the valuation may be affected.
While many argue that AI investment is in its early stages, there are concerns that some players are too tied up with their own suppliers and partners. That circularity obscures the real financial picture, creating vulnerabilities that could shatter if AI optimism wanes.
While much of the focus for AI in 2025 was on chatbots, Mark Haefele, chief investment officer at UBS, said capital spending in the sector could focus on agentic AI (systems or “agents” that can perform cognitive tasks with little or no human prompting), physical AI (such as robots and self-driving vehicles) and AI video.
UBS estimates that around $4.7 trillion will be spent on AI capital expenditure globally by 2030 – almost double the $2.4 trillion previously planned, based on more than 40 announcements this year.
economic outlook
Despite an increase in trade barriers in 2025, the world economy is expected to avoid recession in 2026. Kathleen Brooks, UK research director at broker XTB, expects it to remain resilient with a low chance of a global recession.
The main risks to global growth in 2026 are that a fragile job market gives rise to recession fears, or that equity markets question the value of AI-related revenues, Goldman Sachs analysts told clients.
Goldman forecasts “strong global growth of 2.8% in 2026”, with the US economy projected to “significantly outperform” due to less pressure from tariffs, tax cuts and easier financial conditions. It also expects China to remain in good shape, as strong exports offset sluggish domestic demand.
UBS believes the global economy is set to accelerate in 2026, helped by improvements in business and consumer confidence and additional fiscal stimulus in some advanced economies.
Dutch bank ING said it is “still relatively bullish” on the US economy and expects a weakening of economic conditions in 2026 to support growth.
Deutsche Bank suggested the US midterm elections in November could influence policy early in the year as Republicans try to avoid losing seats.
objects
The price of oil will be highly sensitive to geopolitical developments during 2026, such as the Russia-Ukraine war and progress toward ending the conflict in the Middle East. Forecasts of an excess supply could also push prices down.
Consultancy firm Oxford Economics estimates Brent crude oil will close in 2026 at $58 a barrel, down from $60 last month, and fall further to $55 in 2027.
Mecopper prices may increase due to shortage. Deutsche Bank predicts a “marked deficit” for the copper market in 2026, with prices peaking in the second half of the year.
Central Bank and Rates
Currency markets are forecasting two US interest rate cuts by December 2026, although this forecast is dependent on the outlook for the US economy and Trump’s choice for the next Fed chair.
Richard Carter, head of fixed interest research at wealth manager Quilter Cheviot, said markets “will be on high alert for any erosion of Fed independence”.
In the UK, the full price for a rate cut is in 2026, but many economists expect the Bank of England to cut rates at least twice.
what could go wrong?
City veterans know that the market consensus will inevitably be wrong – the question is in which direction.
Dario Perkins, an economist at forecaster TS Lombard, suggested the picture may be stronger than expected.
“The consensus: 2026 will be just like 2025,” he told clients. “Stable global growth, little deflation, and monetary policy returning to neutral, where it remains indefinitely. Zzzz.”
He added: “Where could the consensus go wrong? Our bet is on a strong pick-up in activity, which drives up inflation and triggers a debate about monetary tightening (in the second half of the year).”
But “the risks of a misstep are increasing,” said William Davis, global chief investment officer at Columbia Threadneedle Investments.
He warned: “Growth has proven surprisingly durable, inflation has subsided (albeit unevenly), and markets have continued to climb. But imbalances are brewing beneath the surface. We believe the year ahead will be defined by how successfully policymakers and investors can navigate the narrow path.”
