2026 Research Investment Themes

OUR PREDICTION

2026: A Defining Year for Artificial Intelligence

Tech companies are expected to spend nearly $500 billion on Artificial Intelligence (AI) alone in 2026.¹ To validate such significant capital expenditures, investors will demand that these firms start generating revenue from AI, particularly the hyper-scalers leading the charge on the infrastructure buildout. For the investment to be considered successful, even feasible, revenue from AI spending will have to increase by roughly $1.5 trillion next year. At the same time, electricity consumption is expected to double by 2030, and capacity constraints around energy production may limit the expansion of AI.² Large-scale infrastructure buildout will be needed in 2026 to keep pace with AI development. Equity valuations on tech stocks are pricing in lofty goals, and throughout 2025, investors have been keen to punish AI losers and reward AI winners. This investor skepticism around unprofitable AI is projected to continue in 2026.

OUR PREDICTION

Market Breadth Will Widen Beyond Large Cap Growth

U.S. economic growth outpaced major international economies in 2025. The U.S. economy grew near 2.0%, supported by steady consumer spending, and easing financial conditions that helped counteract the effects of a gradually cooling labor market. China’s GDP came in near the mid-four% range for the year, which is considered weak relative to its long-term trend, while the EU is expecting GDP growth of 1.4% for 2025. Even though international markets delivered stronger performance than anticipated, economic growth played out as expected.

OUR PREDICTION

Small Caps are Poised for Outperformance

Capital expenditures (capex) accelerated in 2025, and investment in AI and infrastructure is expected to continue in 2026. Energy and utility capex alone are predicted to reach $1 trillion by 2029.⁵ Consumer spending has remained resilient amid heightened uncertainty this year and is forecast to remain robust in 2026. Spending and wages have grown above the rate of inflation throughout the year, leaving the consumer well-positioned for 2026. The impacts of tax cuts and other provisions in the One Big Beautiful Bill Act, which was passed in 2025, are expected to add 0.6% to GDP in 2026.⁶ When viewed holistically, the economy is poised for above-trend growth in 2026.

OUR PREDICTION

Commodities Offer an Attractive Opportunity

Massive investments in AI, EVs, and grid modernization are expected to drive sustained demand for industrial metals and energy inputs, supporting commodity prices. Many commodities remain in structural deficit, with current global supplies falling short of aggregate demand. Copper, for example, is projected to fall short of demand through 2050 by 19 million metric tons without additional supply.⁷ Ongoing geopolitical tensions and supply chain fragmentation are expected to keep volatility elevated and reinforce the strategic value of physical assets. China controls 69.2% of the production of Rare Earth materials, prompting expanded U.S. investment.⁸ Strong GDP growth in emerging economies may provide an additional tailwind for commodity prices to rise.

OUR PREDICTION

International Markets Continue to See Strong Performance

International market earnings growth is expected to become more competitive due to supportive fiscal policy and improving structural fundamentals, especially in Europe and Japan. As AI adoption broadens globally, it is projected to boost semiconductor, robotics, and cloud-linked markets in Asia. In Germany, the announced €500 billion fiscal stimulus package was issued with a “growth booster,” essentially, an additional initiative to create incentives for private investment.⁹ More favorable business regulations in the EU could also be a tailwind for continued growth and earnings expansion. Synchronized global growth, which many economists forecast for 2026, has historically provided a tailwind to international equities.

OUR PREDICTION

Fixed Income Markets Remain Attractive Despite Marginally Lower Starting Yields

One of the predictors of forward-looking returns for fixed income is starting yields, which remain significantly above pre-pandemic levels. With the Federal Funds Rate Target Range at 3.50%-3.75%, interest rates have come down from recent highs but remain elevated relative to recent history. The possibility of further interest rate cuts in 2026 adds to the potential for price appreciation. Because yields and returns are inversely correlated, as the Federal Reserve cuts interest rates, bond prices increase. Corporate fundamentals remain robust, suggesting that companies can manage the current cost of interest, and default rates are not projected to increase significantly above current levels. 2026 has the potential to be another strong year for fixed income.