Wall Street’s Predictions for 2026

0:07This has been a busy stretch for Sam Potter, a senior editor for markets at Bloomberg. And it's like this every year, starting in mid-November. That's when the very earliest outlooks for the next year start to arrive on my desk, coming through email. I generally let a little pile build up until I'm ready to tackle them. Then Sam starts reading, looking for the big themes Wall Street strategists and economists and portfolio managers expect will shape the year ahead. It's a lot. I mean, there are dozens and dozens of these things, and many of them run to hundreds of pages. For years now, Sam has boiled all that down, synthesizing how some of the top names in finance are thinking about the coming year.

0:50The end product is this amazing tool you can find at Bloomberg.com. What I try and do is take the top line calls and then we piece them all together in the feature and we make it searchable. You know, you can filter by the financial institution or by the topic or by the asset And it allows you to compare and contrast all the different calls. Sam identifies each firm's base case for the economy and markets. And what he's keeping an eye out for are high conviction calls. Lots of them are very much, they sit on the fence. They say, well, this could happen or that could happen. No conviction. We're optimistic, but there are risks.

1:29Or you get these ones that try and be creative and thematic. and they will say, here are the top five trends that we think will shape humanity in the years ahead. They are ultimately their marketing tools. But some of them can be super interesting, either super bullish or super bearish. It may not surprise you, given how 2025 shaped up, that the biggest theme for 2026 is artificial intelligence. The thing that sort of leapt out of me in this year's outlook was this idea that everyone on Wall Street, or seemingly everyone on Wall Street, is bullish about AI. They talk of it as a game-changing revolutionary technology.

2:13But at the same time, the biggest risk that most of them see is that the AI investment cycle is overhyped, that we could be in a bubble, and that things could turn ugly. And it wasn't lost on me, as I talked to Sam about all the work that went into this project, that maybe AI, the technology that led markets to record highs, could have made his job a lot easier. Actually, in the end, I made a point of not using AI for this. I used the same method that I was using seven years ago, which means possibly I'm inserting my own bias and misfunctioning brain instead of AIs, but at least it's consistent over the years.

2:58I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, from AI to geopolitical risks to gold, what Wall Street expects for 2026.

3:15Sam, we're at this moment where more investors seem to be questioning or thinking differently about AI's growth, in particular, how much money is being poured into the infrastructure that powers AI. How does Wall Street see that playing out in 2026? On balance, they lean on optimism here. Most of them see the transformative power of AI, changing the way we work, changing the way we innovate, boosting productivity. They also look at the expenditure and say, well, who's paying for all this? In many cases, these multi-multi-billion-dollar deals that we see hit the headlines. the company behind them is one of the tech mega caps you know heavily cash rich they can afford to make this expenditure until they see returns on it and these tech mega caps their earnings are still super solid it's not like the dot-com where the firms that were throwing out these huge deals didn't really have earnings potential were very concentrated you know the magnificent seven highly diversified companies with massive earnings potential.

4:23So a lot of Wall Street takes comfort from that and it sort of backs them into thinking that this AI expansion is going to be sustainable for the near future at least. Are there any outliers of note? Anyone who is calling this a bubble definitively? There's not an awful lot this year. There's not an awful lot of kind of outlier firms. Vanguard springs to mind. They're very cautious on the valuations currently being quoted for the Magnificent Seven. They're worried about it. But even there, they say, we think the market's over-concentrated. We think these companies are potentially overvalued. But we don't recommend you get out of AI investing.

5:07Instead, look for the second order sort of companies, the ones who will benefit from AI, or look for the infrastructure investments that are tied in with it. 2025 was this year in which so much focus was on and so many of the returns came from just a handful of stocks. It's also true of 2024, I should say. All the while, there's been this conversation, this persistent conversation in the background about whether this market is going to broaden out, the need for it to broaden out. As these strategists look ahead to 2026, is there any confidence that that is going to happen? They certainly think so.

5:41A lot of the recommendations are AI is not a bubble or it's not yet a bubble. But given the valuations and the market concentration surrounding the mega caps, it may be time to diversify. And by diversify, they mean look for the sectors that are going to really benefit from implementing AI, look at where this expenditure is going. So in infrastructure and data centers. So these outlooks are telling us get ready for this market to broaden out. but would just point out this isn't the first year we've heard that and probably not the second year we've heard that either i was interested to write the summary section for ai and as i wrote it i was actually in the on the back end in the system we use i was deleting the old one from last year and the old one from last year was talking about we expect the gains of ai to broaden out into more sectors and look for the winners from AI.

6:42So it seems like we're still waiting for that broadening out and for those sectors to really adopt and apply it. So a good question is whether in a year's time, we're going to be having a very similar conversation to this, I suppose. Sam, what about other risk assets? I'm thinking stocks, commodities. Does Wall Street expect they're going to continue to climb? Yeah, mostly. Again, off the back of the AI boom and the frenzy around that, plus we have very fiscally loose governments, plus we have central banks leaning towards easier policy in most major geographies. All of these things are seen as a tailwind for risk assets.

7:27So while no one's predicting huge double-digit returns this year, everyone seems pretty confident that you're better off being invested than not, put it that way. I wanted to ask you about gold. What do these outlooks say about the prospects for assets that aren't risky, ones that are considered kind of more haven or safer assets? Yeah, there's some advice to look for new hedges. I think one thing noted that given the situation where we've potentially got short term borrowing rates coming down, but very fiscally expansive programs in government, that means the long end yields are going to stay high.

8:04So a steeper curve. What that can mean is that maybe bonds will provide you income. They're not necessarily going to act as that hedge against equity risk. So there's talk about where you find your hedges. Gold is still up there. It seems like not many firms want to predict the end of gold's upswing. We start 2026 with the Federal Reserve still very much focused on inflation, higher than it wants it to be. Also very clearly worried about future prospects of the labor market. What did you learn, Sam, from these outlooks about what Wall Street expects from the economy in 2026? Yes, it's interesting.

8:42The Fed is definitely a big question because they are very much seen caught between slowly declining but still very sticky inflation that's way above target and a labor market that is sort of feeling the pressures of rising costs of tariffs and political pressure, let's face it, from the Trump administration for lower rates. and we also have the Fed chair set to be replaced, a number of votes surrounding other members of the Federal Reserve. On balance, mostly people expect the Fed to ease a little bit, but the stickiness of inflation will mean they can't go quite as far as perhaps Trump and the politics want.

9:26Economy-wise, the various tailwinds mean moderating growth, most of them saying growth's going to be pretty much in line with the long-term trend. Another big theme in 2025 was private markets, private credit, and a couple of bankruptcies in that space that really raised worries that an economic downturn could maybe expose troubled companies. We had JPMorgan Chase CEO Jamie Dimon now famously warning that when you see a cockroach, there are probably more that could emerge in this space. I'm curious how much ink was spilled about that in these outlooks, kind of raising concern, raising questions, thinking about sort of the way that private markets are going to play a role, a continued role in the economy in 2026.

10:06Yeah, a lot of them tackle that pretty much head on. they see the various you know the cockroaches as pretty much contained to be honest there's a lot of positivity around private markets still private equity and credit various credit structures i think their argument is that it's a good diversifier that their returns are potentially good that mostly companies corporations are in pretty rude health it does bear saying though that most of them say private markets look good but what you need is expertise to guide you through it and we're the ones to give you that expertise so i'm always well aware that the more complicated or obscure or hard to invest in the market the more money that wall street can make from helping you invest in it so yeah a lot of talk about private markets they think that bandwagon has has got some distance to go yet.

11:07Coming up, how accurate were last year's calls? And what does that say about how we should look at this year's?

11:23Bloomberg Sam Potter has done this analysis of Wall Street outlooks for seven years in a row now. And while he looks ahead, Sam also takes stock of how accurate the preceding year's outlooks were. So I asked him how often Wall Street's predictions pan out. That's so hard to answer because so often they couch everything in this could happen, this may happen, this is what we're worried about. I think if you're in our business, if you're in the financial business, what you're probably dealing in as much as anything else is ideas. ideas and possibility and oftentimes the audience to these things are going to be making their own mind up as well they're going to be experienced professionals they're going to have their own expertise when i look through them i'm looking for something anything that jumps out as unique or sticks out about a year ahead and also the common themes when we see dozens of reports saying we don't think AI is a bubble, that lends you some maybe confidence.

12:24I don't know, maybe we should be worried that everyone thinks it's not a bubble. Maybe that's the contrarian warning sign. Sam says one of last year's most prescient calls also involved breaking from the pack. We saw that actually in 2025, one that stood out last year. BCA were extremely bearish on tariffs and they basically in their outlook said, everyone's underestimating Trump and what he wants to do with tariffs. It's going to be ugly. This is what we think is going to happen. And of course, come April, they were pretty much spot on. Sam, you've been through this cycle a few times now and every year you start with a stack of calls that may look totally reasonable.

13:07What sort of things tend to upend them? What are the X factors? Geopolitics is always the one that they worry most about because it's the hardest to foresee, particularly with Trump administration. And he's a fairly unpredictable guy. In fact, at one point that was seen as a deliberate policy that he would sort of surprise people. But the shocks, yeah, I think it's not so much shocks they're worried about this year as any major shift in trend. So AI, maybe it's a bubble, maybe it isn't a bubble. even if it's not a bubble if confidence starts to wane in ai then it would be it'd be like the tanker turning you know it'd be a big mega trend turning and in credit and private credit and private markets if they're wrong and there are more cockroaches than they think again it could bring to an end a sort of long-term trend if trump does do something unexpected and and there is more trade friction and inflation actually starts to increase, a big inflation shock is actually probably that's one of the biggest potential tail risks that people say.

14:18You know, that's the fat tail. If inflation goes the wrong way, then it throws so much other stuff, fiscal, monetary, out of the window. We've talked about AI. We've talked about the mega caps, talked about this narrow market. When you compare the outlooks for 2026, the outlooks for 2025, how much do they have in common? How similar are they this year to what we saw last year? Thematically, yeah, last year, I remember leading the story part of the feature with Trump because he had just been reelected. He was set to take office. And that kind of overhung everything. Obviously, that's much more, if you can ever call Trump a known quantity, but it is much more of a known quantity now.

15:02The tariff situation is seen as stable, if not settled. So we've been able to move on from last year, move on a little bit from Trump. I think people also look ahead and see the midterms and think that that might restrain Trump's excesses a little bit. But there remain some big similarities. Before I let him go, I asked Sam how he hopes people in the industry, readers, and the generally curious will use his tool. So I think that such is the volume of stuff that Wall Street produces for the year ahead and so sort of disparate. I don't think people have the time or necessarily the easy access to read it all, to consume it all.

15:51I hope what I do, if nothing else, is give them a tool that aggregates and allows them to compare and contrast. And it allows them to sort of fix their place in the Wall Street universe, their firms standing alongside others. I'd also hope that if I was in the industry, I'd want to be checking it and make sure that I wasn't accidentally in a huge outlier position with all my money on betting against AI or something when everyone else on Wall Street feels differently.

16:27This is The Big Take from Bloomberg News. I'm David Gurra. The show is hosted by me, Wan Ha, and Sarah Holder. The show is made by Aaron Edwards, David Fox, Eleanor Harrison Dengate, Patty Hirsch, Rachel Lewis-Kriskie, Naomi Ng, Julia Press, Tracy Samuelson, Naomi Shaven, Alex Gura, Julia Weaver, Yang Yang, and Taka Yasuzawa. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. Thanks for listening. We'll be back on Monday.