2026 has started with a bang, literally. The US bombed Nigeria, arrested the Venezuelan President, and now there is the real possibility they’ll invade Greenland. Outside the US, there is an uprising in Iran, the Russia/Ukraine war continues to grind on, and SA is getting closer militarily to China and Russia.
This is by far the most precarious geopolitical situation since the end of the Cold War.
And yet… stock markets continue to hit all-time highs.
AI spending continues to outpace revenue, inflation remains above targets, and Fed Chairman Jerome Powell could face criminal charges. Still, the rally rolls on.
We are, as the saying goes, living in strange times. But while it’s impossible to predict exactly what lies ahead, we can identify the major trends shaping the landscape—and position ourselves accordingly. Here are the three trends I believe will define 2026—and what they mean for your portfolio.
1. The great realignment: Why geopolitics, not earnings, will drive markets in 2026
Since the end of World War II, the US has been the leader of the free world. Europe and most democracies have followed its lead—militarily, diplomatically, and economically.
This is no longer the case.
After recent moves in Venezuela and Nigeria, and even rhetoric about Greenland, global trust in American leadership is crumbling.
Allies are rearming. The US dollar is losing ground as the world’s default currency. And new alliances are forming to challenge US dominance.
This shift is more than political. It’s reshaping global markets—and how capital flows.
Even AI, as important as it is, is best viewed in terms of the ‘great realignment’. Chip fabs are moving out of Taiwan. Tech exports to China are being clamped down on. And the US still won’t regulate AI. None of this makes sense—until you factor in geopolitics.
So, how should you be thinking about this?
European defence stocks have already rallied—but if NATO starts to fracture, there could be more upside ahead. Meanwhile, the trend toward localisation and self-reliance is likely to drive up production costs—putting renewed upward pressure on inflation.
2. Why the next market risk isn’t interest rates—it’s taxation
After 2008, we entered the ZIRP era—Zero Interest Rate Policy. Rates hit the floor. Governments flooded the system with money.
Then came COVID, and spending exploded again.
But the hangover has arrived.
Budget deficits in many countries now rival wartime levels. And the long-term pressures—like ageing populations and shrinking workforces—are only getting worse.
Governments have two options: spend less or raise more.
We know how this goes. Spending cuts are politically toxic. So taxes are the more likely path—especially wealth taxes.
France already failed to pass one last year. California is next in line, proposing a 1% annual wealth tax. It may not pass. But over a trillion dollars has already left the state. That’s how real the threat feels.
Expect more of these proposals in 2026—and capital to continue shifting in response.
What does it mean for you?
New taxes, as opposed to simply raising current taxes, means that current tax avoidance strategies and wrappers are vulnerable. So think twice before tying up your assets in complicated tax structures.
3. Can AI justify its price tag—or is a correction coming?
Despite impressive improvements, AI has had almost no measurable impact on GDP growth. Meanwhile, the investment keeps pouring in—now totalling over 1% of US GDP.
That can’t go on.
By some estimates, we need to see at least an additional 5% GDP growth over the next decade to justify what has already been spent.
Either AI must start delivering meaningful productivity gains—or the money will stop flowing.
Generative tools like AI music and AI books won’t cut it. We’ll need real breakthroughs: physical automation (robots, self-driving), or entirely new scientific and industrial advances.
Until then, the risk of an AI investment pullback is real—and rising.
So where does that leave your portfolio?
If US GDP doesn’t rise significantly (4-5% by 2027/28), AI-linked valuations are too high—and it could be time to rebalance your portfolio accordingly and focus on value and defensive sectors.
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