There are always upside and downside risks to the outlook. Below are five things we are watching going into 2026.

1. The US economy starts re-accelerating because of the fading trade war shock and the One Big Beautiful Bill, and inflation begins to move higher from an already high level.

2. The global industrial renaissance boosts global growth with more and more countries focusing on homeshoring advanced manufacturing capacity, investing in infrastructure, energy, defense and supply chains.

3. The new Fed Chair lowers interest rates purely for political reasons.

4. AI bubble bursting results in a major correction of Mag 7 equity prices and slows capex spending and high-end consumer spending. 

5. Dramatic increase in the supply of fixed income in 2026, coming from growing government deficits and hyperscaler issuance, puts upward pressure on rates and credit spreads.

Swaption volatility remains very low despite significant debate about what the Fed will do at its next meeting, see chart below. In other words, the market is not expecting sharp moves in yields over the next three months.

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The CBO estimates that the One Big Beautiful Bill will boost GDP growth next year by 0.9%, see chart below. The main factor in the bill is that, starting January 1, 2026, businesses can immediately deduct capital expenses, such as investments in equipment and R&D. This is a major tailwind for the economy in 2026.

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European companies typically allocate more of their resources to tangible assets, such as property, plant and equipment, resulting in a higher tangible asset ratio than US companies. In contrast, US firms invest more heavily in intangible assets like software, brand value and intellectual property rights, see chart below.

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