Markets Begin 2026 With AI Optimism and Lingering Risks

Global markets opened 2026 on a broadly optimistic note after a strong 2025, with investors banking on continued earnings growth, an AI-driven capital expenditure cycle and the prospect of further monetary easing. Wall Street forecasters tracked by major data providers broadly expect stocks to extend gains for a fourth consecutive year, and strategists point to healthy corporate and household balance sheets and ample liquidity as additional tailwinds.

This positive stance rests on narrow foundations. Technology leadership and the diffusion of AI spending are the principal structural stories sustaining the rally, but return concentration and high valuations have increased market vulnerability. Goldman Sachs strategist Peter Oppenheimer captured the prevailing mood succinctly, saying he "remains constructive on equities for 2026 as earnings continue to grow." Yet several cross-currents could erode that constructiveness.

Near-term market drivers are concrete and varied. The December final reading of the S&P Global US manufacturing PMI and an otherwise quiet corporate earnings calendar will be watched closely for signs of momentum or fatigue. Two policy and legal events loom: a U.S. Supreme Court decision on the legality of emergency tariffs imposed by President Donald Trump is expected this month, and an announcement of a new Federal Reserve chair is anticipated soon. Monetary policy is central to the path of risk assets after the Fed cut rates by a cumulative 175 basis points across 2024 and 2025; investors hope for additional easing in 2026, but that outcome will depend on incoming labour market and inflation data.

Consensus forecasts are constructive but measured. Christopher Harvey of CIBC Capital Markets projects roughly an 8.8 percent gain in the S&P 500 for 2026, reflecting expectations of continued earnings expansion but lower index returns than in 2025. J.P. Morgan research emphasizes front-loaded fiscal support, broadening AI capex and liquidity as durable supports for global growth and corporate profits, while cautioning that adverse inflation or equity shocks would transmit quickly to emerging market FX, rates and credit.

Inflation dynamics remain the most macro-critical risk. As J.P. Morgan’s Luis Oganes warned, "worryingly high inflation in the U.S." could force the Fed to delay easing, tightening financial conditions and lifting term premia. That scenario would raise borrowing costs, compress equity valuations and push investors toward safe havens. Geopolitical tensions already underpinned demand for protection last year: gold posted its best annual return since 1979 in 2025, and oil prices fell more than 15 percent over the same period as OPEC+ signalled a likely decision to keep output unchanged for the first quarter of 2026.

Behavioral factors amplify these technical and policy risks. Buoyant equity flows and investor fear of missing out have contributed to a hot-hand psychology, which can accelerate positioning into crowded trades and deepen drawdowns if narratives shift. Should AI spending disappoint, or should key macro prints surprise to the upside on inflation, markets could quickly reprice the optimistic baseline.

For reporters and market participants the immediate checklist is clear: monitor the Supreme Court tariff ruling, the Fed chair announcement, U.S. labour and inflation data, the S&P Global US manufacturing PMI reading, and the forthcoming OPEC+ decision. The dominant narrative entering 2026 is constructive, but it is conditional and fragile; policy shifts, legal rulings and macro surprises remain credible catalysts for a reversal.