2026: The Year Ahead

Many things in the world changed in 2025, in some very profound ways and with very uncertain possible outcomes. Prominent among the things that didn’t change much, though, were financial markets and the global economy in general. That was something of a surprise, given the volatility we experienced during the late first and early second quarters of the year. But the volatility settled down. The direction of the economy pointed up, as did the path of risk assets. Bond yields were for the most part pliant during the second half of the year. Companies made plenty of money, and a number of them reported record sales and earnings, despite the many reasons why that plausibly might not have been the case.

Simply putting 2025 into the context of, say, the previous couple years of economic activity (both of which were likewise upward-pointing), there would seem to be no reason to think that anything had changed much in the world. American consumers continued to spend their hard-earned incomes, artificial intelligence enterprises continued to build out their sprawling empires of data centers and large language modules, and China found plenty of markets eager to import its products despite lower levels of activity with the US following the threat of higher tariffs (and imposition of some, but not all of the ones threatened). Europe muddled through yet another year of slow, but still positive, growth. In Japan, the long-reigning Liberal Democratic Party did what it does best, adapting just enough to a changing society to remain in power, helped by the emergence of a new and popular leader. Brutal wars dragged on in geopolitical hotspots, notably in Ukraine, Gaza and Sudan, but managed to avoid the catalysts that would turn a regional war into a global conflagration. At the end of it all, the S&P 500 stock index notched its third positive year in a row, up by just under 18 percent for the full year. This was the eighth positive year for the benchmark large cap index over the past decade.