As November draws to a close and portfolio managers finalise their year-end positioning, attention shifts toward 2026. The coming year presents investors with a landscape shaped by artificial intelligence’s advance, challenging fiscal positions in developed economies, and questions about whether equity markets can sustain their remarkable momentum.
Artificial intelligence continues transforming industries, with large US tech companies on track to spend $405 billion on AI infrastructure in 2025, a dramatic acceleration from recent years. Yet this unprecedented spending raises questions about returns on investment and competitive dynamics.
The composition of AI leadership grows increasingly uncertain. Nvidia’s dominance faces mounting challenges as hyperscale customers diversify chip suppliers. Meta Platforms is in talks to spend billions on Google’s AI chips, whilst Anthropic agreed to access up to one million of Google’s TPUs in a deal worth tens of billions of dollars. These developments signal a challenging trend for incumbent leaders: customers actively seeking alternatives to reduce dependence and control costs. Whilst opportunities exist in companies like Alphabet and Meta Platforms, investors should recognise that massive capital deployment doesn’t guarantee proportionate returns. The greatest risk may not be underexposure to AI, but rather overpaying for companies whose competitive advantages prove less durable than anticipated.
The fiscal position of developed economies presents genuinely troubling dynamics. America’s national debt surpassed $38 trillion in October 2025, with the debt-to-GDP ratio at approximately 123%, significantly exceeding the post-World War II peak of 106%. Federal debt held by the public is projected to rise from 100% of GDP this year to 118% by 2035, with deficits averaging 6.3% of GDP through 2055, more than one and a half times the fifty-year average.
Whilst immediate market implications remain muted, complacency is not something that can be ignored. Research suggests each percentage point increase in debt-to-GDP raises long-term interest rates by 3 basis points, implying rates could rise over 1.5 percentage points in thirty years if debt increases as projected. Europe faces similar challenges with even less fiscal flexibility, whilst structural headwinds from Chinese manufacturing dominance cloud growth prospects.
For portfolio construction, this environment demands caution. Government bonds offer defensive positioning, but yields face sustained upward pressure. The debt trajectory may be a slow-burning concern rather than immediate crisis, yet it constrains policy flexibility precisely when future challenges emerge.
Wall Street’s 2026 forecasts are mixed . JPMorgan targets 7,500 for the S&P 500 with upside to 8,000, whilst Morgan Stanley expects 7,800. These imply returns of 11% to 18%, one could argue aggressive assumptions given current uncertainties.
Geopolitics now tops the list of economic threats, whilst 74% of survey respondents believe markets are due for correction. Sophisticated investors assign a 49% probability to a 10-20% downturn and 20% probability to corrections exceeding 20%. Global economic growth is expected to moderate to 3.2% in 2026 from 3.3% this year, hardly the backdrop for aggressive multiple expansion.
The investment case for 2026 rests on pillars that some commentators think are fragile: Will AI-driven productivity supporting earnings, will sufficient growth validate elevated valuations, and will inflation fall enough to accommodate further central bank interest rate cuts ? There are some of key questions investment managers are considering for 2026.
Companies best positioned combine structural growth exposure with reasonable valuations and proven business models. Yet “reasonable valuations” remain elusive in technology stocks embedding aggressive AI monetisation assumptions. Quality matters immensely when valuations already reflect optimistic scenarios.
The path forward appears more challenging than market pricing suggests. Double-digit returns require both earnings delivery and sustained multiple expansion, a demanding combination given elevated starting valuations and mounting macro headwinds. The investors who succeed in 2026 will be those who maintain discipline, resist momentum chasing, diversify their portfolio holdings and recognise that sometimes the best investment decision is patience.
The year ahead requires clear-eyed assessment rather than extrapolation of recent success.
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