Will AI still drive markets again next year — or will the bubble burst?
Wall Street experts are generally pretty bullish about the stock markets in 2026, but that doesn’t mean there won’t be bouts of volatility to navigate amid shifting economic and market trends.
In its outlook for 2026, strategists at J.P Morgan Private Bank outlined the three major themes they see most impacting the investment landscape in the year ahead. The emergence of these themes will require investors to construct their portfolios accordingly.
In 2025, uncertainty defined the market narrative. Today, three major themes set the agenda, reflecting a fundamental shift in how economies operate and requiring a refreshed investment playbook, one that blends discipline with flexibility,” Grace Peters, co-head of global investment strategy at J.P. Morgan Private Bank, said.
AI: Transforming industries
One of the three defining themes for 2026 is artificial intelligence, or AI. AI has driven the stock market to huge gains the past three years, and will continue to do so, according to J.P. Morgan strategists.
“Artificial intelligence is transforming industries, driving productivity and reshaping labor markets, fueling a surge in investment and speculation about a potential AI bubble,” the report said. “In our view, we believe the current AI boom is underpinned by solid fundamentals rather than speculative excess. Ultimately, we believe the greatest risk lies in being underexposed to the sweeping impact of this transformational technology.”
Large U.S. technology companies are projected to spend $500 billion, or more, in capital investments next year, more than triple the $150 billion spent in 2023. And the next wave of AI — including agentic AI systems — is still in its formative stages.
“Despite this impressive momentum, AI investment still accounts for less than 1% of GDP, and one company alone plans to build data centers with over 25 gigawatts of capacity—representing well over $1 trillion in capital expenditures in the coming years,” Jacob Manoukian, U.S. head of investment strategy, said.
Fragmentation, inflation and diversifying beyond bonds
The second major theme, according to J.P. Morgan experts, is the fragmentation of markets, which creates new challenges and opportunities for investors.
“As globalization recedes, fragmentation is driving North America, Europe, Asia and Latin America to redefine their roles and opportunities in a world shaped by regional interests. With new blocs emerging and shifts in security, trade and currency dynamics, investors must navigate a landscape where strategic diversification is more important than ever,” the report stated.
That means finding new opportunities in growth markets, like defense spending in Europe, copper in South America, and tech and AI investments in Asia and emerging markets, for example.
In addition, the J.P. Morgan strategists noted that the investment landscape has been redefined by the rise in inflation along with increased government deficits. This could lead to ongoing price pressures and heightened uncertainty.
Today, inflation’s gradual yet significant impact is a central consideration for long-term portfolio performance, as investors must navigate a new inflationary regime shaped by structural drivers such as capacity gaps, robust consumer balance sheets, supply chain resilience and fiscal activism,” the report said.
Stephen Parker, co-head of global investment strategy, said investors need to look beyond bonds.
“To navigate this new regime, complementing core bonds with commodities, real assets and uncorrelated hedge funds provides diversification for equity exposure amid persistent inflation,” Parker said.
