London 12 January, 2026. After a disorienting 12 months, in 2026 investors should position for a goldilocks macro backdrop, with above-trend growth, mild disinflation (despite higher-than-target rates) and risks to the upside. It adds up to a relatively benign outlook for cross-asset returns. Despite geopolitical shocks, divergent policy cycles and questions around the sustainability of the AI boom, forecasts point to a broadly benign backdrop for cross-asset returns, underpinned by above-trend global growth and a fading inflation impulse.
“After a disorienting period for markets, investors may find that 2026 feels unexpectedly balanced,” said Philip Saunders, Director, Investment Institute. “We expect a Goldilocks environment — not too hot, not too cold — characterised by firm real growth, falling inflation and improved earnings visibility across regions. But this outcome still requires thoughtful positioning. This is not a year to rely on a single narrative; it’s a year to be selective and diversified.”
Traditional market cycle frameworks have become less useful due to disjointed fiscal and monetary dynamics, labour-market resilience and asynchronous policy tightening. Nevertheless, a clear call emerges: growth, not inflation, is expected to be the dominant market driver.
Sahil Mahtani, Director, Investment Institute: “We see global growth running above trend at more than 3% in real terms. Policy easing from 2025 is feeding through, labour markets remain tighter than headlines suggest, and inflation continues to trend lower across major economies. This combination points to a relatively supportive environment for risk assets.” Although the backdrop is constructive, risks remain two-sided, including the possibility of a disorderly weakening in labour markets and a reassessment of AI-related capital expenditure.
Concerns of a dramatic AI crash are overstated. Instead, the more likely scenario is a necessary but modest correction that resets expectations and reinforces discipline around AI unit economics. “There is a lot of talk about an AI bubble,” said Mahtani. “But what we are more likely to see is a healthy recalibration, not a collapse. Usage continues to explode,” efficiencies are improving, and investors are becoming more discerning. AI remains a powerful driver of productivity, but 2026 is about earnings delivery rather than storytelling.”
Despite events in Venezuela and Iran, geopolitical risk likely peaked in 2025, with the US and China entering a pragmatic phase of détente amid domestic economic priorities. While relations between China and Europe may come under renewed strain, particularly around trade and carbon-adjustment mechanisms, global tail risks are lower than they were a year ago.”
Mahtani concluded: “The world is still idiosyncratic, still fragmented, but also surprisingly resilient. For disciplined investors willing to look beyond noise and focus on fundamentals, 2026 could be a rewarding year.”