Looking ahead, the backdrop for growth-oriented investments such as equities remains broadly supportive. Expectations of lower interest rates in many major economies, increased government spending across the US, Europe and Japan, and continued strong investment in artificial intelligence (AI) should all help support global economic growth and company earnings.

Of course, risks remain that could create periods of market volatility. These include the possibility that AI adoption takes longer than expected, a weaker US jobs market, or a deterioration in geopolitical relations. Any of these could lead investors to reassess the outlook for global growth and result in short-term market fluctuations.

However, periods of market volatility are a normal part of investing, and do not necessarily signal a change in the longer-term outlook. The central view of the investment team at atomos is that equity markets should continue to deliver solid returns over the year ahead. In this environment, remaining invested and maintaining a diversified portfolio remains an effective way to manage short-term market movements.

The investment team expects the US to extend its lead in 2026, but importantly, it also expects solid growth across most advanced economies. Two major forces will likely drive this:

1. Governments are spending more

In the US, new tax and spending measures should support the economy.

Japan and Germany are also increasing investment, partly driven by a global push toward greater self-reliance following changes in US policy.

2. AI investment is booming

The largest US technology companies dramatically increased their investment in AI infrastructure in 2025 – and plan to keep doing so in 2026. This spending benefits not only the tech sector, but also many supporting industries, creating a ripple effect through the wider economy.

In the UK, growth is expected to slow but remain positive in 2026, with softer business investment, subdued household spending and easing labour demand. This could lead to higher unemployment and slower wage growth, helping inflation move lower. These conditions support the case for several Bank of England rate cuts, potentially more than markets currently expect. That said, the UK accounts for less than 4% of global equity markets, so its impact on the wider investment outlook is limited.

Against this economic backdrop, the implications vary across asset classes.

The investment team remains positive on global stock markets. Governments in the US, Japan and Europe are planning more spending, and businesses, especially those investing in AI, are set to invest heavily again next year. This supports healthy economic growth and, in turn, corporate profits. In this environment, US shares should maintain their higher valuation relative to other key equity markets.

Strong company finances and steady economic growth should keep defaults under control in 2026. However, companies are likely to borrow more to fund their AI investment plans, which could put mild upward pressure on borrowing costs and limit returns in corporate bonds relative to equities.

Interest rates aren’t likely to move in the same direction everywhere. In the US, strong growth may keep the US Central Bank, the Federal Reserve, from cutting rates as much as markets expect. In the UK, weaker growth and lower inflation could lead the Bank of England to cut interest rates more than is expected by markets. Against this backdrop, UK government bonds, or “gilts”, appear relatively attractive, supported by both the expected path of interest rates and comparatively high yields.

US shares, especially the big technology companies, have led global markets for many years. In 2025, Japan was the standout performer, but the long-term drivers of US equity market leadership haven’t changed.

A big debate in markets is whether AI will genuinely transform productivity or whether the excitement has created a bubble. Views differ widely, even among major policymakers and CEOs. Our investment team’s position is clear:

Are the big US tech companies in a bubble? The investment team doesn’t think so.

• Most of their share-price gains have been backed by strong earnings, not just hype.
• Their valuations have stayed relatively stable for years while their profits have grown substantially.
• These companies have structural advantages: huge scale, powerful competitive advantages in areas with high barriers to entry, loyal user bases and the financial strength to keep investing for the future.
• AI adoption plays to the strengths of the seven dominant tech companies, known as the Magnificent 7, as widespread adoption most likely comes with integration of their products. Strong earnings growth, rather than a sentiment driven increase in valuations, will likely be the key driver of performance in 2026.

Outside the major tech names, parts of the wider US market look more expensive. But this isn’t significant enough for the investment team to change its positive view on US equities overall.

The largest seven US companies make up more than a third of the S&P 500 index. Historically, similar periods of concentration haven’t reliably predicted weaker returns or higher volatility. So, on its own, concentration isn’t a reason to have a negative outlook on equities.

While the team is optimistic about the year ahead, there are several risks that could influence markets. These include:

1. If the US job market continues to cool, which could weigh on consumer spending.
2. AI investment delivers less benefit than expected or takes longer to pay off.
3. A further deterioration in US-China relations.

While these risks could lead to periods of market volatility, they do not, in the view of the investment team, alter the broader investment outlook.

Overall, the environment remains supportive for growth-oriented assets such as equities. Expectations of lower interest rates in many regions, increased government spending and sustained investment in AI should continue to support global growth and corporate earnings.

Market volatility is likely to occur at times, but this is a normal feature of investing. The central view of the team is that equity returns can remain solid over the year ahead. Remaining invested and maintaining a diversified portfolio remains a sensible way to manage uncertainty and participate in long-term market growth.

Source: atomos.

Information correct as of 2nd January 2026. 

FOR PROFESSIONAL INVESTORS ONLY.

atomos is the trading name of both Atomos Investments Limited (FCA No: 122588, Company No: 2041819) and Atomos Financial Planning Limited (FCA No: 193503, Company No: 3879955), both authorised and regulated by the Financial Conduct Authority and registered in England and Wales. Registered offices: 2nd floor, 5 Hatfields (alto), London, SE1 9PG.

The information and opinion contained in this article should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested.

The companies mentioned are shown for illustrative purposes only, do not constitute investment advice, and are not a recommendation to buy or sell any security.

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