Global stock markets look set for a good year in 2026, with double-digit gains possible across both developed and emerging markets.
This view is based on wider earnings growth, lower interest rates and fewer policy obstacles.
The United States and Asia are the main drivers, helped by an AI-led investment cycle that is boosting business investment and profits. The recovery is uneven, however, creating clear winners and losers and feeding political discontent in some places.
The US
The US economy and policy are moving in the same direction. We expect the Federal Reserve to cut interest rates to about 3% by the end of the year, with the possibility of deeper cuts if politics push policy further towards easing.
Under this scenario, an S&P 500 level of 7,700 – roughly a 13% total return – looks plausible.
If rate cuts are larger and inflation falls, the index could reach 8,000, though a weaker dollar would reduce returns for investors outside the US.
Companies and markets
Corporate profit margins could rise a little from already high levels, helped by productivity gains from artificial intelligence (AI). We expect earnings growth in developed markets in the low to mid-teens percentage range.
A small group of AI leaders now make up a large share of the US market and has driven much of the recent gains, supported by rising investment in equipment and research.
Companies should keep returning cash to shareholders but investment spending may grow faster than buybacks. For investors, the best opportunities are likely among high-quality firms that benefit from AI, especially in technology, communications and utilities, with selective exposure to banks and pharmaceuticals.
Quality-growth and momentum strategies should do well, while small-cap and low-volatility holdings can help diversify if the Fed eases more aggressively.
Europe and the UK
Europe is in a stronger position than it has been for two years. Credit conditions are improving and fiscal support is being rolled out, so earnings growth could match the US.
Valuations look attractive and cautious investor positioning leaves room for upside, especially in Germany and France.
Companies tied to construction, industrial upgrades and capital spending should benefit from planned stimulus, while the EU’s planned spending on defence and infrastructure – around €1trn – and looser deficit rules should help mid-sized firms.
In the UK, shares trade at a notable discount to peers. The market’s heavy weighting in consumer staples, healthcare and commodities offers some protection against inflation, rate swings and geopolitical shocks.
Japan
Japan’s outlook rests on steady policy and reform. ‘Sanaenomics’, a continuation of reflationary fiscal policy, plus corporate governance changes, should free up cash, encourage investment, lift wages and increase shareholder payouts.
Companies have already started buybacks, asset sales and higher dividends, and households are beginning to move savings from cash and bonds into equities.
Emerging markets
Emerging markets should outperform as local interest rates fall, earnings growth outpaces developed markets, governance improves and fiscal positions strengthen.
Valuations are supportive. China should see a policy-led pick-up in activity early in the year. Korea is well placed thanks to governance reforms and a strong role in practical AI applications.
More broadly, Emerging Asia should benefit from faster growth and a weaker dollar, allowing more scope for monetary easing.
Latin America could also gain from lower rates and elections that favour market-friendly policies, despite local risks.
Main risk
This positive outlook depends on continued supportive policy. It could be derailed if the recent era of easy liquidity and low interest rates ends suddenly.
A sharp rise in long-term bond yields would be the most likely trigger. Overall, however, we expect policy to remain supportive.
Jon Cunliffe is head of investment office at JM Finn. The views expressed above should not be taken as investment advice.