After last year’s strong global stock market – what should you expect in 2026? Some may envision a replay while others see a bursting bubble.
But a different path is most likely: while the bull market should continue, again led by non-US stocks, gains should slow from the 22 per cent the MSCI All-Country World Index (ACWI) delivered in 2025. And volatility could be high, especially early on. Still, patience will be rewarded as early American political headwind turn to tailwinds – a bullish effect spreading globally.
Before delving into 2026 details, recall last year I said dour sentiment primed positive surprise and a better-than-expected year, with non-US stocks leading. So it was.
Europe outperforms
European stocks soared 36 per cent in dollars, exceeding the gains of world stocks. US stocks trailed both, yet still rose 17 per cent. In local currencies, fully 35 of 47 nations in the ACWI hit record highs. Thirty of those came in the fourth quarter. Gains were global.
Many in 2025, like now, argued US tech and AI froth masked an otherwise flimsy market. Nonsense! Five of the supposed culprits, the 'Magnificent Seven' US tech giants, actually trailed the S&P 500 – which, again, was behind the rest of the world.
Meanwhile, tech-bereft European nations like Italy, Spain and Austria outperformed hugely. Banks and Industrials largely underpinned such rises. In Europe, those categories rose 96 per cent and 41 per cent, respectively.
Regardless, after three straight “big” US and global stock market years, many pundits warn stocks flew “too far, too fast”. After all, US and world stocks finished 2025 up a total of 84 per cent and 76 per cent, respectively, since the end of 2022.
But the returns of recent years are, actually, extraordinarily average. While the S&P 500 has averaged 10 per cent annualised returns over the long term (in US dollars), that 10 per cent figure averages both bull and bear markets. During bull markets in the last century, US stocks have annualised 23 per cent gains. Annualised returns for the last three years? Exactly 23 per cent. Exactly average.
In 2026? Big gains have stoked spirits … somewhat. Of 73 professional forecasts I can track for the widely watched S&P 500, only four feature US stocks down more than minus 1 per cent in 2026. Few outright pessimists. Meanwhile, tepid forecasts surround the median, 9.6 per cent (in US dollars). Few strong optimists.
The consensus of professional forecasters never happens one year out – a reality I proved decades ago. It doesn’t happen because their current consensus views for one year out, their reasoning and all, are exactly what is pre-priced into stock prices now. Hence, two 2026 outcomes look likeliest: stocks fall … or top 10 per cent gains. Fundamentals favour the latter.
The global yield curve, a key driver I detailed in September, is steep, spurring global lending. US loan growth is a strong 6.1 per cent year-on-year, more than double year-ago rates. Eurozone lending grew 3.6 per cent in November (the latest data available) – the highest in nearly three years. These trends echo globally. More lending fuels economic growth, which should top dour expectations.
Many fret the vicissitudes, tantrums and threats of US President Donald Trump, including his foolish tariffs, and bombastic geopolitical gyrations – arguing “this time is different” while ignoring the lessons of 2025. Those worries, factored into stock prices now, are bullish.
Beyond America, 2026 politics looks quiet. France may be an exception, as more budget twists could emerge. But this old tale lacks shock power. Japan’s snap election adds uncertainty – but results and clarity arrive soon.
Midterm miracle
The surprisingly impactful political story will be America’s November “midterm” legislative elections. Early on, extreme campaign rhetoric from political party extremists of both parties, jockeying for poll position in the primary season, will spur fears of bizarre 2027 Congressional outcomes, grinding stocks sideways.
In November, the party of the sitting president routinely loses relative power to the opposition party in midterms, increasing gridlock – and will this time. Stocks love it. Why? Big legislation stokes uncertainty by creating winners and losers – an anchor on stocks. Midterms kill that risk. So stocks soar.
Political bias blinds most to this repeat “Midterm Miracle”.
In US dollars, America’s S&P 500 usually suffers meagre returns in the first three quarters of midterm years. But in the fourth quarter, stocks celebrate midterms – and gridlock – explosively, rising in 84 per cent of midterm year four quarters. They climbed in 88 per cent of each of the next two quarters, too.
It all spills into tightly correlated global markets in one big rally. What is good for US stocks is good for the world.
Geopolitics, the unpredictability of Mr Trump and more can still stoke volatility – maybe a correction. And the world is not risk-free. But 2026, overall, calls for moderate, patient bullishness.
