Macro: 8 issues that will define the investment landscape in 2026

The year ahead brings a mix of opportunity and fragility: firmer US growth despite a soft labour market, a change of leadership at the Federal Reserve, geopolitical uncertainty amid a more assertive US approach in Latin America and Greenland, and a delicate inflation path for China and Japan. Meanwhile, emerging markets continue to exceed expectations, even as geopolitical risks intensify.

Against this backdrop, eight issues offer a roadmap for understanding the macro forces that will shape this year. 

US growth and jobs: moving forward, but unevenly

We are forecasting the US economy to expand 2.2% this year, above consensus expectations, driven by AI investment spending, fiscal loosening, and less tariff uncertainty. 

Yet the labour market has lagged, partly due to earlier tariff related caution among firms as well as the capital intensive nature of AI investment.

We expect this year will deliver stabilisation rather than an acceleration in job creation. The unemployment rate should ease from roughly 4.5% to 4.2% by year end — a gradual improvement consistent with a maturing economic cycle.

Federal Reserve leadership: recalibration or regime change?

A new Fed chair will take office in 2026, with President Donald Trump’s administration expected to nominate a candidate soon. 

Markets will scrutinise the nominee’s commitment to central bank independence and their interpretation of a sensible path for monetary policy. 

Our baseline remains for two further interest-rate cuts later this year, reflecting a dovish but credible approach to policy from the new chair. 

But deeper cuts could ignite questions around political influence and inflation dynamics — risks investors will need to watch closely.

The “Donroe doctrine”: A more assertive US in the western hemisphere

President Trump has revived the “Monroe doctrine”, taking a more assertive approach to pursuing its economic and political interests in its ‘backyard’. This is exemplified by the intervention in Venezuela, and the attempt to gain control of Greenland. 

Meanwhile, Mexico is preparing for a key review of the regional USMCA trade deal with the US. We expect the agreement to remain in place, although more frequent reviews will keep policy uncertainty elevated.

The US may also play a role in Brazil’s presidential election in October which will affect the country’s fiscal-policy trajectory, while ballots in Peru and Colombia will add to the region’s political uncertainty.

All told, investors should brace for the US being a source of geopolitical volatility across the region and the globe, even absent some of the worst-case scenarios coming to pass.

Election year: policy volatility on both sides of the Atlantic

The US faces pivotal mid term elections, with cost of living concerns shaping voter sentiment and the balance of power within the House of Representatives liable to swing either way. 

In the UK, local elections will represent a critical test for the Labour government after a sharp decline in voter support. A leadership challenge cannot be ruled out if results disappoint.

For investors, 2026 is a reminder that policy direction can shift rapidly, and politics remains a major source of macro uncertainty.

AI exuberance: justified optimism or emerging bubble risk?

Stocks linked to the AI story have delivered extraordinary gains. Some valuation gauges resemble early 2000s levels, yet strong forward-earnings expectations and rapid AI adoption within the real economy argue for continued support. 

Our central case sees AI as a driver for US growth in both investment and wealth effects. But the risk scenario — a sharp correction across AI linked assets — would likely trigger tighter financial conditions and a mild US recession. This possibility remains an essential component of portfolio stress testing.

China’s low inflation challenge: more entrenched than expected

China is in its third year of near zero inflation and persistent producer price weakness. Policymakers aim to reduce excess capacity in sectors such as cars and solar energy, but structural forces weighing on price growth remain powerful. 

Local governments may resist allowing weaker firms to fail, and inflation expectations have shifted lower after such a prolonged period of price softness. 

As a result, tepid inflation looks set to continue, with important implications for global goods prices and competitive pressures.

Emerging markets ex China: can the resilience hold?

Emerging markets delivered a pleasant surprise for investors last year, supported by falling inflation, stable trade activity and broad monetary easing. 

This momentum could continue amid additional rate cuts, pre election fiscal measures and improving global financial conditions. 

But risks persist – from tariff uncertainty to political tensions in Asia and Central Europe. We remain particularly constructive on India, where reforms and sentiment remain supportive.

Japan’s political reset: early promise, real constraints

Japan begins the year under the leadership of its first female prime minister, Sanae Takaichi. The country is heading to snap elections that may increase Takaichi’s parliamentary control.

Markets are anticipating a more forceful revival of pro growth policies. But a sensitive bond market may constrain the extent of any fiscal expansion.

We expect gradual interest-rate hikes from the Bank of Japan this year and a fiscal focus on supporting technology, semiconductors and defence. Trade tensions with China remain a key risk.