Investors face a year of nuance following the tech-driven returns of 2025, with geopolitics, AI efficiencies and government policy all likely to shape markets over the coming 12 months, according to Rathbones, one of the UK’s leading wealth and asset management groups.
John Wyn-Evans, Head of Market Analysis, and Oliver Jones, Head of Asset Allocation, Rathbones, give their views on key themes to watch for 2026.
AI investment enters a new phase
Oliver Jones says: “The debate over whether AI is in a bubble is understandable, but today’s backdrop differs markedly from the dotcom boom. Unlike the late 1990s, this cycle is highly concentrated among a handful of hyperscalers funding investments primarily from strong cash flows rather than debt. Investors should remain vigilant for signs of a bubble which are absent now starting to emerge – especially any marked increase in reliance on debt funding, or surges in private equity activity and IPOs like the ones which have preceded previous speculative peaks.”
John Wyn Evans adds: “Markets have reached an inflection point where investors want to see more revenue and profits stemming from AI adoption before committing further. This signals a year where capital discipline, cashflow resilience, and commercial progress will matter far more than grand narratives.
“We also anticipate some broadening of returns this year as companies experience productivity gains from the implementation of genAI in their processes. A recent upturn in the fortunes of the Healthcare sector, for example, provides some clues as to where investors might look next.”
Hyperscaler signals become critical
As Jones emphasises: “the AI sector’s reliance on the investment decisions of a few key firms introduces its own vulnerabilities and that investors must monitor what’s happening to the hyperscalers’ cash flows… and how they plan to fund their investment, alongside new orders and backlogs among suppliers.”
Wyn Evans observes that “grand announcements of increased capital expenditure are not being received with the sort of enthusiastic response that prevailed even just a few months ago. With annual datacentre spending running into the hundreds of billions of dollars, scrutiny will intensify.”
Geopolitics a major source of volatility
John Wyn Evans points to a year already shaped by “the removal from office by the US of Venezuela’s President Maduro, signalling that unconventional and potentially disruptive geopolitical events will continue.”
Trade tensions remain a significant threat: President Trump’s renewed willingness to deploy tariffs has already triggered sharp market reactions, while China “controls around 90% of global refining capacity” for key rare-earth minerals, giving it outsized leverage. As Wyn-Evans puts it, markets should expect “more activity on this front in 2026.”
Economic conditions supportive, but inflation still a structural risk
Wyn-Evans highlights that “economic conditions are generally favourable globally, with consumers and corporates in decent shape and interest rates falling across most major economies. Recession risk remains low. However, inflation continues to complicate the picture, with core inflation slow to return to the 2% target and likely to stay higher and more volatile than in the pre-Covid era.”
Political preferences for “more deficit spending and less ‘globalisation’” reinforce this backdrop, shaping bond markets and asset-allocation decisions.
Equity market leadership to broaden
After years dominated by mega-cap technology names, Wyn-Evans says there are “tentative signs of a broadening out of returns, with Healthcare making up a lot of lost ground and Europe and parts of Emerging Markets benefiting from fiscal stimulus, industrial spending and AI-related capex.” The shift reflects investor appetite for areas where valuations remain attractive and policy support is strengthening. The move away from narrow market leadership opens the door to more regionally and sector diversified sources of return in 2026.
Cautious approach to fixed income, with gold a useful diversifier
Wyn Evans says: “If there’s one lesson bond investors have learned in recent years, it’s that the ‘safe haven’ status of government bonds is not to be taken for granted. 2025 saw steady, if unspectacular, returns – most investors simply clipped their coupons, with little in the way of capital gains. Yield curves steepened as longer-dated bonds failed to keep pace with falling short-term rates, reflecting persistent worries about government deficits and the potential for inflation to stay above target.
“Looking ahead, we remain cautious. Our preference is to keep bond portfolios on a short leash – minimal duration exposure allows us to benefit from still-attractive yields and any further reductions in policy rates, without taking on undue risk from deficits or inflation surprises. While the dramatic repricing of 2022 is unlikely to repeat, longer-dated bonds remain vulnerable. Precious metals, particularly gold, have proven to be more reliable diversifiers of late, and we continue to see a role for them in balanced portfolios.”
Opportunities across regions
US: “US equities remain the anchor of global portfolios, but after a year of relative underperformance, the focus now shifts to whether economic growth and earnings can justify current valuations. The outlook is for moderate gains, but much depends on the economy avoiding both recession and overheating. Investors should expect a more discerning market, with leadership likely to broaden beyond the tech giants.
UK: “The FTSE 100’s strong run in 2025 sets a high bar, but the UK’s hallmark diversification and resilient financial sector provide a solid foundation for the year ahead. While domestic challenges persist, international exposure and ongoing corporate activity could help sustain momentum, especially if global conditions remain supportive.
Europe: “Europe enters 2026 with renewed confidence, buoyed by fiscal stimulus and increased defence spending. Financials and industrials are well-placed to benefit from these trends. While political risks linger, the region’s improved economic backdrop and capital investment should underpin further progress.
Emerging Markets: “Emerging markets offer a mixed but promising outlook. Technology and industrials – especially in South Korea and China – are likely to remain key drivers. Attractive valuations and a shift in global supply chains could draw more investor interest, but selectivity will be crucial as regional dynamics diverge.”
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