2026 outlook: What’s next for markets and the global economy?

What's next for markets and the global economy after a year defined by escalating tariffs, persistent geopolitical tensions, and the rise of artificial intelligence across industries? We see a constructive outlook across most markets with both the M&E and the MEC, which is expected to be at other assets in particular cash and bonds. We see growth forecast getting upgraded across the curve as we're going into the new year, and there's a lot of fiscal and monetary policy easing that is going to provide a tailwind for an improving growth backdrop. We do believe sticky inflation overall remains a theme on the global stage, and it is, I think, an important in terms of limiting the ability of central banks overall to lower interest rates. Welcome to JP Morgan's Making Sense. I'm Sam Azarello, and I lead content strategy for global research here at JP Morgan. Today, I'm joined by a few of my colleagues to discuss our outlook for 2026. To kick things off, we'll hear from Bruce Cazman, our Chief Global Economist. Bruce, thanks so much for being here today. Thanks, Sam, for having me. So Bruce, what surprised you most about the global economy in 2025? I think the biggest surprise was the resilience of the global economy in the face of some significant negative shocks. The particularly big one was the rise in US tariffs, the trade war that had opened up. But at the same time, I think the resilience of the global economy has not come with balance growth, and there was another surprise, which was the divergence in a global economy, which seemed propelled by strong capex and particularly tech spending in 25, and at the same time had a fairly sharp slowing in job growth. That juxtaposition of capex accelerating in job growth, stalling for the most part, was a major surprise. Fantastic. Thanks for that, Bruce. Where do you think the global economy is headed in 2026? And what are the key factors to watch? So the global economy's movement into 2026 to us is being driven by two broad factors. And is the sense that the sentiment shock that came this year in 2025 alongside the trade war begins to fade. And we think that will be an important catalyst for re-coupling the labor market to the overall picture on growth. Labor markets have been quite weak. Job growth has nearly stalled across the major economies. And if we're right, we get a lift from fading of some of the concerns about policy, a lift that's partly supported by the easing we've seen in monetary and prospective easing in fiscal policies. And we therefore get, as we move through 2026, an alignment of solid growth with more normal performance in terms of job growth rebounding. That's the first thing I would emphasize. The second thing we would look for is less synchronized, but still overall, sticky inflation in that environment, that's partly driven by the continued overall environment of goods price pressures being different than that they were before the pandemic. And it's also being emphasized by the fact that as job growth recovers here, we continue to see weak labor-supplied dynamics, immigration policies, having shifted materially across most advanced economies. And with that, we begin to start to see a turn again towards labor market tightening, which basically shifts from what has been some softening we've seen in the US and other countries this year. So, sticky inflation, weak supply sides due to immigration policy, and solid growth, as you re-couple the labor markets to an overall decent performance we're expecting across most of the globe. One of the consequences of this, of course, is that central banks do not get the opportunity to validate market expectations for interest rate declines. And we are not looking for much if any additional easing from most central banks with the exception of a high yielding EM central banks that probably still have more to come. Final question for you. Will sticky inflation remain a prevailing theme next year? But I would also suggest, however, is we're moving away from a period in which inflation dynamics are more synchronized, that was clearly a factor in the post-COVID Russian invasion environment in which these global shocks were so important. Inflation dynamics are going to be more driven by local conditions, particularly labor market tightness. We do expect overall here to be relatively sticky and stable inflation, but also expect to see more variation with perhaps the most notable variation is that we have inflation in Western Europe coming down to target and inflation in the U.S. staying close to 3%. Bruce, thanks for your insights. Next up, we have Ms. Love Matika, head of Global Equity Strategy. Ms. Love, thanks so much for joining us today. Hi, Senator. Thanks for having me. So, why don't you start by walking us through the overall outlook for global equities in 2026, across both developed markets and emerging markets. We see a constructive outlook across most markets, with both the M&EM equities expected to be at other assets in particular cash and bonds, with equities offering in the range of 10 to 25% upside in our view. And the bullish fall is driven by the support in growth policy trade of Vero1, and we look for robust earnings delivery next year, and that is underpinned by resilient activity momentum in the U.S. but also an improvement among the laggard regions. So China here could show green shoots of consumer recovery, and Eurozone fiscal stimulus is likely to become much more impactful. And on the other side, inflation is likely to stay on the downtrend due to subdued bread, slowing wage growth and slowing services inflation, which in turn will keep failing particular Davish through the first half of 26, and the bond was therefore unlikely to break out higher, and especially not to break out higher for the wrong reasons. Now more specifically for the U.S., we are looking for the rally that is supported by continued rapid AI rollout, and therefore in the U.S. we keep preferences in terms of the styles or large caps and for the growth. In the rest of DM, we think that Eurozone will show better earnings delivery after three years of stalling, and that is a stronger activity and less headwinds from trade and from the FX. Japan was our key DM-all-root call for 25, and we still think that it goes up further in 2026, but after the big rally, valuations are becoming cooler. And finally, within the EM, which you like, we in particular have bullish goals on Korea, India and Brazil. All right, certainly a lot for us to keep our eyes on. How is the relentless expansion of AI fueling record, cat-backs, and earnings expansion? And how might this impact markets in 2026? AI rollout remains a clear positive for markets, focused on the U.S., given that almost half of recent 500 weight is AI related these days. Now the rapid AI cat-backs is set to continue, and that's almost irrespective of whether stocks keep performing. As in a sense, this is seen to be a U.S. versus China race, and one country lose. And within the U.S., there is a winner-taped solid mentality. So public projections are only likely to get higher, without anybody being able to set off, even if the surprises don't follow. So the natural risk here is the one of commoditization with returns on investments, not delivery of concentration risk, and eventually of overcapacity, and we are cognizant of this. But we do believe that AI rollout is in early stages, and that's really, if you cannot brand it, the year two or three out of potentially 10 plus, in contrast, smartphones, they took H to 10 years, cloud, took H to 10 years of the accelerated adoption. So there's much more to go here, as we mentioned before, in the U.S. portfolio, we are staying constructive on the AI team and the all-written large caps, versus small caps, as well as the growth versus value style. Now AI names have been responsible for pretty much all the incremental earnings growth in the past few years, and in our view, they're likely to deliver a bulk market earnings growth again next year. And in this, as we move through 26, we do expect more and more companies to be able to point out the benefits of the implementation of AI tools in their operations, which would support their productivity and profit margins. So the AI trade should be broadening. It should be broadening into the adoption beneficiaries of AI. So the next 50 hundred companies in S&P 500, and that will also be helping the international names. Besides AI, what are some other key factors that could shape global equity markets in 2026? For a long time, AI was the only story in town, and almost all the price returns, all the earnings, and all the capex in the past years were driven by AI. We do see additional sources of the upside for equities next year. In fact, for S&P 500, in the latest, Q3 results, the remaining 495 stocks have recorded the best earnings growth in years, as past 12 percent. And the gap with Max 7 has narrowed quite a lot. That is healthy, and we'll address, to some extent, the concentration risk that is in the markets. Also, Eurozone stimulus has not materialized really so hard this year. And we feel that it was actually correct to fade the Eurozone rally from Q1, we have been arguing since March for a consolidation phase. In our view, there wasn't likely to be much of an earnings fall of relief at all. This worked, and we now expect that in the next year, there will be more positive performance of the region with earnings finally delivering on the upside. Besides these trade headlines, we'll be an important consideration, as into the midterms, US administration might want to water down some of the tariffs in order to ease the cost of living pressure on the US consumer. And fade out, look, it really, it would be also the key factor driving equities, where any potential turn towards more cautious stance, who didn't particularly the adversity, but also, there is this wild card of fade potentially staying dovish, if some of the inflation numbers do indeed will grow. So look for rates markets in 2026, and are there any regions you'll be keeping a close eye on? If we take the baseline view, being one of resilient growth with a global assessment likely avoided, and a generally broad disinflation backdrop with some increased divergence, that kind of set to scene in terms of probably limiting the potential for yields to rally, but I do think that means as a theme we can look to seek carry opportunities in certain markets where central banks are in hold, particularly in your area and in Sweden. I think there is a bit of divergence across curves, which we'll look to investigate, particularly at the front end of the US curve where rates look probably a little bit too low in our view against macro backdrop, and we think the Fed is probably delivering slightly fewer cuts and markets for currently pricing, and maybe the conversation will slowly turn towards hikes at some point, but I don't really think that's a big story for next year, and that's probably more a 2027 theme that can start to kick in towards the back end of 2026. So I think this probably means there's a bit of a theme of cross market divergence between US and euro, which will be keeping an eye on, and we also keep an eye on potentially increase fiscal and political term premium in the UK, which might have an impact on intermediate yields from the second quarter of next year, and also the fiscal backdrop and issuance dynamics will be a focus for Japanese rate markets as well. Very interesting insights. Do you see monetary policy continuing to diverge across the globe next year? Yes, for sure. I think there's definitely scope for some divergence across the DM central banks. It's probably limited in nature, but certainly there's probably the Bank of Japan expected to be the only DM bank that's tightening. We expect the policy to rise to 1% by the end of next year, as underlying inflation continues to rise. We think the ease in cycle for many central banks though has ended, so we see the ECB, the Riksbank, the Norsebank, the RBA and the RBNZ all on hold over 2026. I don't think it's only the Fed and BUE are expected to eat a little more. We forecast one further 25 basis point cut from the Fed in January, which is a bit less than what's priced into the front end of the curve in terms of the terminal rate over 2026. Do we see terminal rate getting closer or getting to 3.5% now? We expect the Bank of England to cut rates to about 3.5% on the middle of next year, which is a little more than priced into markets, so definitely some divergence, but relatively limited compared to what we've seen over previous years. And final question for you, Francis. What's the forecast for yields? Are they expected to grind higher over the course of 2026? Well, again, I think it's somewhat selective here, Sam. So in our base case forecast, I think we do think a few years, Treasury yields can rise modestly over the second half of next year, but at the front end in Germany yields a lot more range bound, and probably at the front end of the UK maybe yields a bit lower, to be honest, in terms of a modest rally over the next few months. And if we look further out, we see 10 year Buns, probably around about 275% by the end of next year, 10 year Treasury is at 435% by the end of next year and 10 year Guilts around 475% at the end of next year. So that doesn't apply modestly low, but yields, whereas we do think 10 year Guilds and 10 year Treasury yields can grind modestly higher over 2026. I'd say when we think about the curves, that just gives a bit more of a mixed view in terms of how curves can behave across regions. So probably a bit of steepening in the UK unchanged in Germany, for modest steepening in the US as well, and then flatter curves in Japan and Australia. And finally, let me just look at sovereign entry, me spreads. I think it's just a story of spreads moving sideways over the first half of next year, with maybe a slightly more cautious outlook over the second half of next year. Frances, thank you for joining and sharing your insights. Great. Thanks for having me, Sam. Now let's hear from Mira Chandon, co-head of Global FX Strategy. Hi Mira, great to have you on the podcast. Looking ahead, what are the main forces shaping the FX market in 2026? There are two main macro themes that we'd be focused on. The first is that central banks are going to be transitioning from what was a simultaneous easing cycle in 2025 to a simultaneous hold at relatively high levels above pre-COVID levels in 2026. So this is a pretty big transition, where 70% of central banks were cutting rates, now no longer doing that relatively inactive. The second pillar of the macro theme is that this is going to be a fairly pro-cyclical dynamic going on in the background. We've seen growth forecast getting upgraded across the curve as we're going into the new year. And there's a lot of fiscal and monetary policy easing that is going to provide a tailwind for an improving growth backdrop. So inactive central banks, strong growth, if it sounds like the middle of the dollar smile and a low volatility environment, that's exactly what it is. So Mira, is the US dollar likely to remain under pressure in the year ahead and what are the main drivers behind your outlook? Unfortunately, the prospects don't really look brighter for the dollar in the coming year. We have been better since March of 2025 and we continue to stay better as we look in the year ahead. The reason for that firstly is that at least in the early part of the year, the Fed will either keep rates unchanged for a long period of time, or they're going to cut a lot either for data-driven reasons, or perhaps if political pressures start to mount. But regardless, I think what that means is any kind of dollar strength we get is going to be quite bounded, whereas the dollar weakness could be more open on the downside. I think there could be periods, long periods of dollar consolidating at relatively unchanged levels, because if US growth is 2%, in the ceiling 3.5%, that's a pretty good outcome. But the risks on balance, if we do get a large move, I think is skewed to the downside. Lastly, let's talk about other currencies. Which ones will you be watching closely and why? The currency is to watch in 2026 are going to be the usual three major ones. I would say the Euro, Yen, and the Chinese Yuan. Eurodollar, look, net net, we are still bullish, but we have lowered our sites, our previous target on the upside, was 122, that we've taken down to 120. But I also think equally, Eurodollar can spend long periods consolidating, because while Eurozone is on its own growth part, on the fiscal front, the US is on its own growth part with AI and tech, so that can be offsetting factors from time to time. So we do think Eurodollar can consolidate 116 to 118 in the near term, get to 120 as global growth improves. I would say the floor on Eurodollar is around 115, if we do get a hawkish repricing for the Fed. On dollar, Yen, I think that's going to be an interesting one to watch early on in the year. The Takaichi administration has turned sharply towards inflationary policies that draw weakening in the Yen in the first place. Now the global monetary policy easing cycles are coming to an end, global growth is strong, so the use of Yen as a funder should just accelerate. So we do think dollar Yen will breach 160 in 2026 and remains Yen's, risk remains Q to the downside. Chinese Yuan, not much movement there really, I mean, dollar C and H we think is going to be just at around just above the seven level. And what that means is the currency remains weak on a basket basis and retains its competitiveness. The Chinese economy retains its competitiveness versus the rest of the world. And what that means is it continues to be an anchor that prevents the rest of the Asian complex from strengthening too much. So those are the three currencies to watch. Thanks, Mira. Really appreciate your views. And now for a look at credit markets. Steve and DuLake, our co-head of global fundamental research joins us. Steve, thanks for stopping by. Oh, thank you for having me. What's the overall picture for global credit markets in 2026? In general, I would say OK-ish, I mean, optically from a macro perspective, we expect this year's macro resilience to continue into next year, which to say we expect continued economic growth. We expect inflation to moderate a little bit. But we do think obviously, one potential flying the ointment is the fed's ability to cut rates further against the backdrop of much firmer economic baseline than we were forecasting a little while back. I would say, though, in many ways, as the year progresses, we think that the sort of the micro will sort of become increasingly relevant from a credit investor perspective. Specifically, we're expecting a notable pickup in that issue and it's not least here in the US. Obviously, expecting continued supply from the AI ecosystem and the AI adjacent ecosystem, we're also expecting. Issues related to M&A and LBO activity to pick up in both high grades and high yield. And you think all of those things take a little bit of a toll on spreads on a look forward basis. So from where we are today, we think spreads will widen a little bit or be it a little more so in high grade. Relative to high yield, so we expect to see a little bit of compression in a modestly wider spread environment. We also expect returns in high grade, dominate those in high yield. And that reflects the impact of a much longer duration in the high grade market. Given our rate strategies, expectations that bond yields will rise a little bit through the course of 2027. Steve, in light of everything you just mentioned, are there any risks we should be keeping a close tab on? There are. I mean, I would say first and foremost, I would say risk wise, any significant deviation from our macro baseline. So, you know, the extent that growth proves to be even firmer than we expect that would have likely knock-ons in terms of sticky inflation at a time when affordability is already currently a bit of a hot political potato. So I think the market could get itself a little bit in a pickle against the backdrop of higher growth because naturally the market will expect sticky inflation. Naturally, begin to bring forward the date at which they expect the fact to raise rates. But we obviously know that in Washington, the executive is very clear and is decided to see lower rates both the short end of the curve and the long end of the curve. So I think that could inject some volatility and some more aggressive moves in bond yields. And that could be an environment where you see credit rates correlation goes one. So you have higher bond yields and higher credit spreads. The flip side of that obviously isn't much weaker, economic outturn. Let's call this something between decidedly subpar growth and recession. I think it's fair to say today that spreads really on pricing any material contingency of recession. So I would say in either direction, material deviation from our macro baseline potentially poses risks to spreads. The other thing I'd probably talk a little bit about would be to extend there's a lot of focus on the increasing use of debt by the AOE ecosystem to fund its capital expenditure plans. If the sort of monetization curve so to speak associated with those investments proves to be a little bit flatter than we all expect, which is to say the return of those investments takes longer to manifest itself. That can be an environment where markets begin to expect or anticipate much weaker balance sheet. So although we are talking about fairly irated companies underlying this issue and doesn't mean that spreads couldn't widen the lock given the growing concentration in the market of the sort of AI ecosystem and adjacent sectors. So those are probably the two main things I'd focus on. Lastly, let's touch on spreads are credit spreads expected to widen next year and if so why so we touch on that a little bit already we expect spread to shift a bit on the back of increased issue and so a relative rise and supply relative to tomorrow. That's not to say we're expecting a material decline in demand kind of given the prevailing yield structure or all in yield structure as you'd say. But as I mentioned we are expecting more supply firstly from the AI related ecosystem and secondly as a result of increasing M&A and LBO activity. I think that will result in an expectation we'll see some slippage and credit fundamentals. So those are the principal drivers for our forecast of moderate spread widening in 2026. Fantastic thanks for that thank you for having me next we'll hear from Johnny golden head of emerging market fixed income strategy Johnny thanks for joining the podcast. Thanks Sam great to be here as we head into 2026 what does the macro picture for emerging markets look like so is a good contrast if we think about where we are now versus where we were this time last year. This time last year obviously looking into 25 the outlook was very uncertain and basically negative for emerging markets as the new US administration was going to change a lot of the macro settings. But as we look into 26 the macro backdrop looks less volatile and more supportive so we are generally constructive on emerging markets particularly local markets FX and high yielding local bonds. If we think about growth first actually our economies forecast are pretty similar to this year so a view of continuity I would say maybe there's some upward bias given the AI CapEx cycle there's been a lot of monetary easing. But the growth environment looks pretty supportive on emerging market inflation this has been falling for two and a half years. We are getting close to the end of that process that means the EMS central banks will not be able to cut as broadly as they have in the last few years. So we have to position for more differentiation around central banks in rate markets otherwise EM debt dynamics for both sovereign and corporate credit look pretty stable at relatively benign levels. Johnny can you talk a little bit about the main risk scenarios you and your team are watching with respect to emerging markets next year. So when we think about the main risk scenarios for emerging markets they don't look like they're going to come necessarily from EM itself but more the global. Really the US environment maybe one smaller and more likely the other one bigger and less likely so let's look at the more likely first. And those are risks that come from the global interest rate environment so if both inflation are going to be higher rates globally and in emerging markets maybe higher and given we are at the end of these rate cutting cycles in EM they can't be as much of a counterbalance to that. From the investors actually we spend the last few weeks talking to their twist on this is actually a scenario where they worry that the Fed is too dovish in the face of better data and actually the long end of the US rates curve becomes a bit de anchored and more volatile now that would probably be positive for emerging markets to start a week of dollars versus EM currencies. But if we're going into an environment of high and volatile US rates then it's unlikely to good for EM bonds generally obviously that's not the base case maybe the bigger risk would be the end to this risk on environment which has been led by US equities some rethink of AI capex or earnings big fallen equities takes down credit markets maybe draws an end to this growth cycle overall again not the base case for the equity team. But I think if we think about some kind of global recession that won't favor emerging market credit spreads or high yielding local bonds but maybe lower yielding effects and rates might outperform in that environment going deeper are there any regional markets you'll be keeping a close eye on the idiosyncratic risks fall poly along regional lines but some actually cut across the first one is about transformative elections. And these are elections where you have very different candidates on offer which may give a very different outlook for the country's chili just concluded on the weekend we have swung from a left wing to a right wing president we have transformative potentially elections in Columbia Peru Brazil in Latin America hungry in Israel in the me am all going to be very closely watched and be opportunities within markets. I think the second would be around what we call distressed opportunities these are countries which are in default at the moment and may come out of that the two big ones that investors are looking at of Venezuela and Lebanon we're not sure they will exit default next year but certainly they are going to be closely followed as opportunities. Some tier markets what we call frontier markets in general particularly in local markets places like Egypt Nigeria Kazakhstan maybe we put Argentina in that bucket as well also been a great source of returns. They are naturally have uncertainty around them so I think we're going to be keeping a close eye on those as well and finally maybe in more macro is the Asian exporters probably put China in that bucket as well tech exporters Taiwan career. Malaysia Singapore had pretty good economic performance this year they have lagged in currency terms so I think investors are going to be watching as well to see if either of those parts will shift. Fantastic thanks for that Johnny thanks for having me and now we're going to turn to commodities joining us is Natasha Canaver our global head of commodities research. Natasha thanks so much for joining thank you for having me let's start with oil how are imbalances in the oil market shaping your price for casts for 2026. Yes thank you so well first of the first message is that we maintain a bearish outlook since pretty much mid 2023. So if you take a look oil prices average about 68 dollars this year down from 80 dollars in 2024 and we believe there is another step down in 2026 our price forecast is about 58 dollars. Our message to the market has remained largely consistent since mid 2023 while oil demand is strong supply simply to abundant. Expanding at three times the rate of demand in boss 2025 in 2026 before moderating slightly in 2027. So there are two main sources of non-opaks supply that we focus on number one is the global offshore sector once it was considered cyclical a cost intensive this sector has now transformed into a dependable long term driver of non-opak oil production. Very important it's position at the very low end of the cost curve what it means it's price and elastic regardless what the price does this is the supply that will continue delivering and the second one is because all the deporter platforms have been already sanctioned and delivered all the way through 2029. The sector offers exceptional visibility on new offshore barrels making future completions highly assured. The second sector we're watching very closely is the global shell we introduced this term in this outlook previous it was just the US shell after the election midterm election win in Argentina we're talking about the global shell. We advise the clients to pay attention to that sector as well. It's a large scale it's relatively low cost as well with a lot of volumes of supply coming there. So as a result global inventories will be building they increased by about 1.5 million barrels put it this year further builds in 2026 and to 2027 without intervention the surplus will climb even further putting downward pressure on the prices. However we believe that this magnitude of market imbalance is unlikely to fully materialize in practice with adjustments expected on both demand side and supply side but you know the greatest burden of rebalancing will almost certainly fall on the supply side. So hence we keep our price forecast for 2026 and change 58 we introduced a 27 price forecast of about 57 dollars per brand. Let's turn to precious metals in 2025 gold was a hot topic do you see gold prices rising even further next year yes definitely so this is a bullish recommendation that we maintain for a force year in a row so as you remember the first time we advised our clients to buy gold was in November 2022. For the force year this is our top recommendation with further price acceleration our price don't get this 5,000 dollars by the end of 2026. So supply remains relatively in elastic which means that supplies not reacting to the prices despite prices more than doubling since 2022 at the same time the major sources of demand in our view will continue delivering into 2026 and 2027. Big focus remains on the central bank purchases we do believe that they will maintain their buying a pattern since 2026 and to 2027 all be that lower volumes at what they averaged over the previous three years on top of this made a combination of expected or further expected Fed cuts into early 2026. Broder investor anxiety spanning us that sustainability and independence continued global financial easing we do believe that we see there is a room for further robust gross in investor demand for gold to particularly as we expect gold ownership to continue expanding into 2026 and 2027. So again the price target for next year is 5,000 dollars per ounce. And lastly what's the story for agricultural markets are there any signs of supply side stress. Yes so the expected returns from the agricultural commodities expected to be mixed so for example we remain bullish on corn and wheat we see greater upside in ice number two cotton and ice number 11 sugar. But we retain the more bearish outlook on soybeans interestingly currently we see no clear signs of shortages or supply side stress and any of the agricultural commodities except in the livestock sector and to some extent cocoa markets. However our projections indicate that global agricultural availability will remain near multi year lows in the 2026 27 harvesting season also in 2027 28 declining further from already low levels currently we expect the tightening availability driven by low producer margins to heightened sensitivity and price volatility in response to supply side shocks. Natasha thanks for your time and insights. Thanks for having me and to round out today's episode will hear from Fabio bossy head of cross asset research Fabio thanks so much for taking the time to join us. Isam thanks for having me what are some key themes you'll be focusing on in 2026 from a cross asset perspective. As you know in our auto we believe that 2026 will be driven by free powerful forces and even monetary policy the unstoppable AI super cycle and the deepening polarization across market and economies. First of monetary policy we are approaching the end of the rate normalization journey across developed market the fed is likely to deliver some selective insurance cut while only the bank of England is set for additional easing. But it's not as I said a one size fits all story central banks are moving at different speed and that the Virgin is going to create opportunity and risk across asset classes. Second the AI super cycle is the real game changer. We are seeing a record level of topics and rapid earnings growth especially in the US equity market. AI isn't just a tech story anymore spreading into banks healthcare logistic and utilities for investor business the anchor theme driving our bullish outlook on US stocks. Third polarization is intensifying in equity there is a clear split between the AI driven winners and the rest of the equity market in the economy. Strong topics standing contrast to weaker labor demand and consumer spending and also cross households the divide between I and low income is widening creating a classic case shape recovery. How this polarization are going to evolve is going to be critical for macro trends and market performance in 2026. What is the big market to take away here fiscal and monetary easing combined with less policy uncertainty in the US are going to boost business sentiment and the help closing the gap between strong growth and the still soft labor market. But this resilience also means that inflation is going to be sticky tariff will keep some pressure on prices and while AI productivity gain and lower energy cost will help they're not going to be enough to offset it. Now let's talk about different scenarios what are some positive scenarios for risk assets that could play out next year looking at the we believe there are several positive tailwinds that could supercharge risk asset in 2026. Just clearly if the AI theme broadens even further we could see a wave of investment as government and companies are racing to avoid being left behind this is what we call the fobo the fear of being obsolete effect. This could drive capex innovation and ultimately also earning growth across sector second there is a possibility of what we call immaculate this inflation if inflation fall faster than expected the Fed could deliver more easing bringing rates down to or even below the terminal level that the current price. There would be a major boost for equity credit and other risk asset. Third global fiscal easing and a rollback of tariff could add even more fuel to the fire for example if the Supreme Court rules against a broad IEPA tariff and the administration doesn't replace them with a universal 15% tariff that could open the door to stronger global trade and growth. In Europe the big upside comes from germophysical expansion and wild geopolitical solution to the rational claim conflict remains a wild card even a ceasefire could have a meaningful impact on energy prices and sentiment that said we are realistic about the challenges getting a full peace agreement with strong security guarantee is a high bar. Conversely what are the main negative risks we should watch out for while on the flip side are some real risk that could derail our positive outlook the biggest near term risk is a genuine markers low down if they were demand stays weak and pay will disappoint. We could see a recession dynamic taking old is not our base case but we are still assigning about 35% probability to this scenario so that definitely remain on our rather screen. Steak inflation is another key risk if price pressure persists and the fed people say away from its current stance removing its asymmetric bias and opening the door to rate ice or title liquidity that could tighten financial condition quite quickly. This is going to put pressure on risk asset especially was that have benefit from easy monetary policy finally we have to talk about a ice skepticism with valuation running hot and a lot of hype in the market there is a risk that investors start to question. The sustainability of the I boom while we believe that fundamental copax sales growth earnings and buybacks will support the ice sector we can rule out episodes of volatility or temporary trades. In short to 1026 will be a year where investors needs to stay agile keep an eye on both the upside and the downside and be ready to pivot as the data and it align evolves. Fabio thanks for sharing the cross asset view. All right that wraps up our 2026 outlook episode here on making sense we hope you found the insights from our analysts helpful and insightful and we want to thank you for tuning in. For more market insights be sure to visit JP Morgan dot com backslash research. Thanks for listening to research recap if you've enjoyed this conversation we hope you'll review rate and subscribe to JP Morgan's making sense to stay on top of the latest industry news and trends. Available on Apple podcasts spotify and YouTube. This communication is provided for information purposes only for more information including important disclosures. Please visit www.jp Morgan dot com forward slash research forward slash disclosures copyright 2025 JP Morgan Chase and company all rights reserved.