From the studio

Video : Mark Haefele’s five New Year resolutions for 2026 (3 mins)
Video: Running a 2026 portfolio, with CIO's Adrian Zuercher and Jon Gordon (5 mins)
Video:Our preferred Chinese stocks for 2026, with CIO's Suresh Tantia (6 mins)
Video:Get your core portfolio, hedges in shape with CIO’s Mark Andersen (9 mins)

Thought of the day

Technology stocks led the declines in US equities on Wednesday, with the Nasdaq sliding 1.8% following news that Oracle’s longtime partner Blue Owl Capital will not back its USD 10bn data center amid stalled funding talks. Separately, reports that Amazon is considering a USD 10bn investment in OpenAI raised additional concerns about the circularity of recent AI deals.

However, without taking any single-stock views, we believe the overall AI story remains intact. Demand for AI compute remains strong, and we estimate that the required compute capacity in the coming years could be orders of magnitude greater than today’s installed base. We do not see evidence of an investment bubble, with company fundamentals in aggregate still robust, and we expect the total addressable market for AI to reach USD 3.1tr in revenue potential by 2030—a 30% compound annual growth rate over the next five years.

The macro backdrop is also favorable. The latest US jobs data this week are consistent with our expectation for another 25-basis-point interest rate cut by the Federal Reserve in the first quarter of next year, and we think the inflation data due today are unlikely to stand in the way. Fed Governor Christopher Waller also said that monetary policy remains restrictive, and that a softening labor market supports a measured approach to further easing.

We believe the combination of Fed easing, resilient growth, and AI advances will be supportive for equities, both in the US and across international markets.

US equities have room to rally further. We expect the S&P 500 to reach 7,300 by June next year and 7,700 by the end of 2026, driven by strong estimated earnings growth of 10% and looser Fed policy. In addition to the transformative force of AI, we believe the structural trends of electrification and longevity will also drive equity performance for the long term. Tactically, we believe AI beneficiaries are broadening out both within and beyond tech, and we see opportunities in companies facilitating grid modernization and supply critical raw materials. In the longevity field, we expect strong growth in the obesity, oncology, and medical device markets.

China remains Attractive, and we view the correction in tech as an opportunity to add exposure. China’s tech shares have fallen sharply over the past two and a half months, with the Hang Seng TECH index down over 19% since its early October high. But we expect the sector to recover over time, maintaining our preference on the broader Chinese market as well as its tech sector. In fact, we see reasons to buy the dip in Chinese tech stocks, which remain our highest conviction stock idea across global markets. With Beijing doubling down on self-sufficiency, ramping up chip manufacturing capabilities, and subsidizing data centers, we expect capex from major tech companies to grow 26% in 2026. In addition, Chinese internet giants have demonstrated their ability to integrate AI into profitable business models, while domestic liquidity remains a key pillar of support for China’s equity market. Chinese tech stock valuations are also attractive, and we expect the sector to deliver earnings growth of over 25% per annum over the next two years.

European equities should benefit from a recovery in growth. Eurozone industrial production in October rose at the fastest pace in five months, and the December flash PMI rounded off the region’s best quarterly performance in two and a half years. We anticipate that positive macroeconomic momentum in the Eurozone will persist, and we expect corporate profit growth to pick up to 7% in 2026 and 18% in 2027. Germany’s increased defense and infrastructure spending should boost investment, while improved banking sector health would support business lending. Europe is also home to some firms that are driving structural trends, as highlighted in our “European leaders” theme. Within the region, we particularly like banks, utilities, industrials, technology, and Germany.

So, we think investors underallocated to stocks should add to their equity exposure, which typically accounts for 30-70% of total assets in a growth-oriented portfolio. Investors underexposed to China technology could use structured strategies to build positions. These can include yield-generating structures that seek to acquire stocks at lower prices, or structures with capital preservation features for investors with a bullish longer-term view but fearful of further potential consolidation.