Five themes for investors to watch in 2026

Markets’ core scenario remains one of cooling inflation, steady economic growth and falling interest rates in 2026.

Faith in central banks’ ability, and willingness, to ride to the rescue in the event of any unforeseen events, such as a recession or bout of wider market volatility, remains undimmed.

Some even expect the US Federal Reserve to deploy new tools to provide liquidity, should it be required.

Should such a scenario develop, investors might need to buckle up, at least if Charlie Munger’s long-held views on central bank intervention are borne out once more.

The long-time chair of Berkshire Hathaway once stated, “I think the notion that liquidity is this… great contributor to capitalism – I think that is mostly twaddle… The liquidity gives us these crazy booms, which have as many problems as virtues.’

In this respect, AI and central banks could remain centre stage in the coming year, but they are just two of five themes in particular that could have a major say on how investors’ portfolios perform in 2026 (and beyond).

1. AI hyperscalers will be tasked with showing a return on investment

Questions as to whether the depreciation burden associated with big tech companies’ investments in data centres, servers, computing power and silicon chips are just one part of debate over whether AI stocks are in a bubble or not.

Bulls dismiss bubble talk by pointing to the transformational potential of the technology and its scope for providing productivity and efficiency gains. The absence of huge stock sales by insiders is seen as an article of their faith in both the future and the valuations of their stock, be it publicly or privately held.

Sceptics will argue the whole thing is a house of cards, as semiconductor, server and cloud services, power and water providers rely on OpenAI to meet $1.4 trillion of investment commitments, with money it does not have and products and services it is yet to fully develop.

The increased use of debt or complex financing agreements brings uncomfortable echoes of the later stages of the technology, media and telecoms bubble of 1998 to 2000, as does Nvidia’s lofty valuation, which at its $5 trillion peak equated to the GDP of Germany and its 84 million inhabitants.

Thus far, AI hyperscalers have been rewarded by investors for spending. The higher their capex budgets went, the higher their shares went. But Meta’s latest budget increase got a cold reception alongside its third-quarter results and questions are being asked about shrivelling free cash flow, financing and when returns on investment will be visible.

Trends in capital expenditure at the Big Five of Amazon, Alphabet, Meta, Microsoft and Oracle could be telling in 2026, especially as their spending means these previously asset-light businesses are now taking on more fixed assets than ever before and encroaching upon each other’s patch in earnest for the first time.

It may be no coincidence that Apple shares have been strong as 2025 draws to a close, unlike those of the hyperscalers, as it, thus far, is studiously avoiding involvement in the AI spending boom.

2. Private credit and private equity will come under more scrutiny

The high-profile bankruptcies of Tricolor and First Brands, the failure of telecoms services providers Broadband Telecom and Bridgevoice, and provisions against loans amid allegations of fraud from US regional banks Western Alliance and Zions Bancorp leave private credit and private equity in the spotlight.

After a golden run, when both asset classes provided valuable portfolio diversification and strong returns, investors could be forgiven for questioning whether the outlook is less shiny.

Whether JPMorgan Chase CEO and chair Jamie Dimon’s view there is never just the one cockroach is borne out or not remains to be seen.

But private credit has gone where banks were not willing to go, or able to go owing to regulation implemented in the wake of the Great Financial Crisis.

Traditional banks have benefited as intermediaries, taking their cut, and some may have started to eat their own cooking and maintained direct exposure via their loan books. That is stoking fears of potential contagion and asset impairments if an unexpected economic downturn pressures borrowers’ performance and the value of loans or equity investments.

On the face of it, markets seem concerned judging by how the S&P Listed Private Equity index and the share price of leading private credit investor Ares Management both peaked nearly a year ago. Both are trying to rally as 2025 ends and whether confidence recovers or ebbs further could be a useful lead indicator for 2026.

3. The yen could prove more influential than the dollar

The dollar is the globe’s reserve currency, and the greenback greases the wheels of global trade, but the Japanese yen’s role in global financial markets could prove more important than many realise.

Tokyo’s currency is currently obliging investors by going lower, but any rally could potentially cause turbulence beyond Japan.

A rally in the yen was fingered as the cause of a financial market squall in summer 2024 but it failed to go above ¥140 to the dollar and has since slumped back to nearly ¥160, as the Bank of Japan has made heavy weather of raising interest rates from zero.

Major market players have shorted it, borrowed against it, and used cheap yen money to go and buy risk assets around the globe. The crunch may come if the Bank of Japan and Governor Kazuo Ueda raise rates more quickly than thought to contain inflation and fend off bond vigilantes, who are becoming twitchy about how yen weakness could lead to imported inflation, the BoJ’s swollen balance sheet and Tokyo’s sovereign debts.

Rate hikes could attract capital to Japan and reverse the yen’s decline. That could force shorters of the yen to unwind their carry trade, as losses force closure of their positions.

Gains in the yen could inflict losses on Japanese holdings of overseas assets, notably US Treasuries, of which Japan is the single biggest foreign owner, with some $1.1 trillion in US government bonds. If Japanese holders start to sell, Treasury prices could go down and yields go up, to further complicate the growth and economic outlook in the US, in an example of the tightly inter-linked nature of global financial markets.

4. Central banks will remain centre stage

It is not just the Bank of Japan that may have a big say over how financial markets perform. Investors are expecting more interest rate cuts to come, following the 126 seen so far in 2025.

US market-watchers are publicly debating whether the Federal Reserve will embark upon a fresh expansion of its balance sheet in the coming year, to provide liquidity at a time when ructions in private debt appear to be draining away some confidence and cash.

Supporters of gold and silver, and other ‘hard’ assets, have long been expecting central banks to scrap plans to shrink their balance sheets back to pre-crisis levels, and to turn on the taps once more.

This debasement trade has done much to boost precious metal prices in 2025 and forms the investment case for them in 2026, even after their gallop to fresh all-time highs this year.

5. The UK stock market cash machine will look to keep rolling

The UK stock market still attracts more criticism than anything else, thanks to the paucity of technology and AI-related stocks, the limited number of new listings and growing list of delistings, and defections to other venues. However, the FTSE 100 has enjoyed a very good year.

According to analysts’ consensus forecasts and company announcements, the FTSE 100 looks set to pay out some £80 billion in ordinary and special dividends in 2025, with a further £57 billion in buybacks on top.

The FTSE 250 is expected to produce a further £10 billion in dividends and nearly £5 billion in buybacks, while takeovers and merger and acquisition activity looks primed to put another £30 billion or so into investors’ pockets.

That comes to a total of around £182 billion, or more than 6.5% of the FTSE All-Share’s £2.6 trillion stock market value – a ‘cash yield’ which comfortably beats the Bank of England base rate, the yield on the benchmark 10-year gilt and the prevailing rate of inflation at the time of writing.

Such a bonanza may be one reason why the UK quietly did well in 2025 and, barring any accidents, the cash returns could keep coming in 2026. Analysts are pencilling in a small increase in total FTSE 100 dividends for next year, and £4 billion of buybacks are already lined up, too.

Granted, this money is not guaranteed to find its way back into UK equities, but it does provide an example of the saying about how the cave you enter holds the treasure you seek.

An unexpected recession would probably put the clamps on buyback activity and snuff out takeovers too if markets wobble as a result.

The biggest downside of the UK’s advance in 2025 is simply that the market is not as cheap as it was. On an earnings basis, the UK now trades in line with historic averages, on a forward earnings basis, rather than at a discount.

But the UK could yet serve as a valuable portfolio diversifier, should AI and tech stocks stumble, or global growth prove resilient, thanks to the predominance of banks, commodity producers and cyclicals within the FTSE 100.

Moreover, any sustained dash for hard assets and their producers, thanks to inflation or other concerns, could favour the index and its cohort of copper, iron ore, gold and silver miners, let alone the unloved oil majors BP and Shell.

Commodity stocks are due to generate 22% of FTSE 100 earnings in 2026 and 19% of its dividends, according to analysts’ consensus forecasts.