Staying on message

I asked AI in December 2025, “What will be the big geopolitical and economic forces I need to pay attention to in 2026?” It answered: “the medium is the message.” That’s a witticism AI told me is funny. 

The point is that while there has been a lot going on, AI has proven to be the most important force driving markets this year, and AI-linked stocks have helped propel equity indexes higher despite rising bond yields, geopolitical risks, and firmer inflation. Investors who focused too heavily on geopolitical headlines in the first half missed the more important market signal. And, while US stocks have made headlines, many global indexes have outperformed. Japan’s Nikkei 225 index has risen by around 40% this year and South Korea’s Kospi index is up more than 100%.

Looking ahead, our base case is that equities can move higher over the next six and 12 months, and we expect the S&P 500 to reach 8,200 by June 2027. We remain mindful of a range of risks, including a loss of confidence in the AI growth story, weaker-than-expected delivery from the ex-AI economy, and higher financing costs. However, our base case sees continued strength in AI capital expenditure, a resilient US economy, ongoing fiscal spending around the world, and strong credit creation continuing to support corporate earnings growth and markets more broadly.

In a post-zero-interest-rate world, we are seeing a rising dispersion between the performance of individual stocks, magnifying the risks for concentrated equity portfolios. Diversification is the cornerstone of our investment philosophy. Yet, we note that, excluding strategic holdings, almost 40% of equity investors on our platform with self-managed portfolios hold more than half of their equity portfolio in just 10 stocks or fewer. We believe the current environment reinforces the argument for diversifying the core portfolio at the center of equity allocations, while complementing this with targeted exposure to structural growth opportunities.