Three Charts for 2026

Source: JPMorgan, Guide to the Markets 2026

In 2026, AI will continue to dominate the headlines as corporates spend their way towards monetisation and promised productivity gains.

Our first chart from JP Morgan shows that capex (investment into AI) has so far been covered by cash flow rather than borrowing. These ‘hyperscalers’ (the likes of Amazon, Google, Microsoft, etc.) have the balance sheets to continue to fund their investment commitments of $2.1 trillion into 2027.¹

This spend, particularly on tech infrastructure and data centres, is tangibly adding to GDP growth and will continue to be a positive driver for the global economy in 2026, particularly as AI adoption across businesses increases.

We are under no illusion that ‘the AI bubble’ has evaporated. Valuations are stretched and debt is starting to rise, however, we believe that is a challenge for future years as investors eventually grow impatient of expenditure not translating into revenue, and debt starts to bite.

¹ Vanguard, Economic Outlook for 2026

Source: Capital Economics, G7 Fiscal Risk Monitor

It’s not just businesses that will be spending big in 2026, governments are at it too as illustrated in the above chart by a ramping up in net debt.

In the US, the One Big Beautiful Bill Act (OBBA) will see their budget deficit lifted by a further 1.5%, boosting household income by 2%.

The latest budget from the UK sees government spending increase in 2026 – the OBR estimates the spending translates into a 2.2% rise in real government consumption.²

Germany is on a binge with their deficit set to expand from 3% to 4.75% and stay there until 2030, representing their largest stimulus package in 30 years. This is set to take Eurozone government investment ahead of the US.³

China has vowed not only to boost their government spending, but also, to focus on the efficiency and effectiveness of it.⁴

All this government spending will be supportive of the economy in 2026, however, similar to the AI spending, it is not sustainable forever and it won’t leave much headroom, at least in the UK and the US, for future years.

² Pantheon Macro, UK Chartbook

³ Allianz Global Investors

⁴ Bloomberg, China vows more efficient fiscal spending

Source: Pantheon Macro, US Inflation

2026 looks to be a good year for financial markets, buoyed by the spending from governments, corporates, and resilient consumers. It should be further aided by interest rates coming down around the world as a result of easing inflation (US CPI charted above).

However, we have to constantly think about the ‘what if’ scenarios for what could go wrong. There are two key risks we have identified.

The labour market. Unemployment is rising in the US, wage growth is falling.⁵ Both the quits rate and the hiring rate in the private sector are falling. This will weigh on consumer confidence and income insecurity could impact consumer spending. Corporates still need consumers to buy their goods.

Inflation. Inflation is cooling in most countries which is allowing central banks to lower interest rates. In the US, tariff-induced inflation is set to dissipate halfway through 2026, and in the UK, energy price cuts should help inflation fall sharply.⁶ Because of these benign expectations, any nasty inflation surprises will bring volatility to equity and bond markets as investors recalibrate their interest rate expectations.

⁵ JPMorgan, Guide to the Markets

⁶ Capital Economics