Global Market Outlook 2026: trends, risks and the road ahead

As we head into the new year, our expert panel unpacks the potential trends, risks and opportunities for 2026, helping you navigate global markets with confidence.

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Joining host Victoria Scholar, head of investment at interactive investor, are Paul Diggle, chief economist at Aberdeen, and the manager and founder of Capital Gearing Ord (LSE:CGT) investment trust, Peter Spiller.

Transcript

Hello and a very warm welcome to everyone joining us for today’s webinar. Thank you so much for being with us — it’s great to see you at the start of the year. I think we can still call it the start of the year, even a couple of weeks in.

My name is Victoria Scholar, Head of Investment at Interactive Investor, and I’ll be hosting today’s panel. The topic we’ll be discussing is what’s in store for global markets in 2026. It’s a broad subject, and we’ll try to cover as much as we can — the key trends, risks, and the road ahead — drawing on expert perspectives from our panel on the US, UK, and international markets over the year ahead.

We’re aiming to run for around 40 minutes. We’ll begin by introducing our guests, then move into a panel discussion, followed by Q&A from you in the audience.

Before we start, just a couple of housekeeping points. First, this webinar is for educational purposes only and does not constitute financial advice. Second, we’d love to hear from you. We’ve already received some fantastic questions that have helped shape today’s discussion — thank you to everyone who’s written in so far.

If you haven’t yet submitted a question, please head to slido.com and use the code 1279355. The Slido code can also be found in the YouTube description, and you can scan the QR code on screen. If you see a question you like on Slido, give it a thumbs up — popular questions will be prioritised.

Now, let’s introduce our fantastic panel.

Joining me today are Paul Diggle, Chief Economist at Aberdeen. Paul heads the global macro research team, sits on the house view committee, and leads macroeconomic forecasting and political risk analysis to support investment decisions.

We’re also joined by Peter Spiller, founder and manager of Capital Gearing Investment Trust. Peter is the longest-serving fund manager in the UK investment trust sector and has developed a disciplined multi-asset investment approach focused on capital preservation and long-term real returns.

Paul and Peter are here to help shape today’s discussion, and it’s fantastic to have you both with us.

Victoria Scholar: Let’s start with geopolitics, which continues to dominate headlines. We’ve seen the war in Gaza, the war in Ukraine, tariffs, and uncertainty around Venezuela, Iran, and Greenland. Despite all this, markets have held up relatively well. Should investors still be paying attention to geopolitics?

Paul Diggle: In short, yes. Geopolitics doesn’t matter — until it does. We’re in an era of structurally high geopolitical risk, driven by the fracturing of the global order and increasing competition between major powers, particularly the US and China. Geopolitics matters for markets when it feeds through to economic fundamentals — growth, inflation, oil prices, and commodities.

We saw this clearly with Russia’s invasion of Ukraine, which affected energy prices and macro conditions. Some of today’s geopolitical themes — including a more assertive US foreign policy — could affect macro fundamentals over time, from oil prices to election outcomes in Latin America. Investors need to build resilience against shocks arising from heightened geopolitical tensions.

Peter Spiller: I agree with much of that. I lived through the 1970s, when geopolitics really mattered because of its impact on oil prices and inflation. That said, it’s important to distinguish between tragic events and economically significant ones. The situation in Gaza has been horrific, but it has had little direct impact on the global economy. However, the broader geopolitical backdrop does have important medium-term consequences. Europe, for example, will need to strengthen its military capability, which implies rising defence spending and significant budgetary pressure over time.

Victoria Scholar: Turning to investment opportunities, let’s start with the UK. The FTSE 100 had a strong year, up around 20%, outperforming some US markets. It’s broken above the 10,000 mark. Are we looking at another strong year in 2026?

Peter Spiller: For me, the most important market is the US. If the US experiences a major correction, correlations across equity markets tend to move close to one — meaning diversification offers little protection in the short term.

Assuming the US remains stable or modestly higher, UK valuations look relatively attractive. In historic terms they’re average, but with momentum, there’s no obvious reason that strength can’t continue for a while.

Financials have performed well, supported by steep yield curves and benign credit conditions. That said, the FTSE is fine — until it isn’t.

On the economic side, UK growth has been sluggish. Inflation has eased, but unemployment has risen. There are legitimate concerns, but there are also potential silver linings.

Paul Diggle: It’s easy to tell a negative story about the UK economy, and many people do. But inflation is coming down, partly due to weaker labour markets and more favourable energy dynamics.

Budget measures are broadly disinflationary, and that should allow for interest rate cuts. I expect three more Bank of England rate cuts, taking Bank Rate to around 3%, which should support the economy.

One key risk is the political calendar. Local, Scottish, and Welsh elections in May could prove challenging for the government. If markets perceive a shift away from fiscal discipline, gilt markets could react negatively.

That said, I do think there’s potential for positive surprises in the UK, especially given valuations and the prospect of rate relief.

Victoria Scholar: Turning to the US, markets had a strong year, but with volatility around tariffs and concerns about an AI bubble.

Peter Spiller: In sterling terms, the US wasn’t as strong as headline numbers suggest. A Bloomberg survey of strategists shows consensus expectations of around 10% returns — a fairly standard outlook.

Earnings growth looks solid, financial conditions are supportive, and rates may fall. But valuations are extraordinarily high. On cyclically adjusted measures, we’re near historical extremes.

Historically, such valuations imply very low or negative real returns over the next decade. Professional managers remain fully invested due to career risk — underperforming the index matters more than avoiding losses.

For individuals, it’s different. Large drawdowns are hard to stomach. Our approach prioritises capital preservation over chasing the last 10% of upside.

Fear of missing out has driven markets higher, but it also explains why valuations are stretched. Long-term investors should focus on downside risk, not short-term momentum.

Victoria Scholar: There has been rotation away from US mega-cap tech. Where are the opportunities?

Paul Diggle: Globally. Emerging markets, Europe, the UK, and parts of Asia offer better relative valuations. Rate-cutting cycles and defence spending provide tailwinds.

Beyond equities, short-dated credit looks attractive. Long-dated bonds face fiscal risks, but the short end offers income without excessive duration risk.

Japan is particularly interesting. Political change, fiscal stimulus, and long-running corporate governance reforms support the equity market. However, currency risk matters — gains can be offset by yen depreciation for sterling investors.

Victoria Scholar: Tariffs are likely less dominant than last year, but legal challenges to US tariff powers could reintroduce uncertainty. The Federal Reserve will also be under scrutiny as Jerome Powell’s term ends.

Peter Spiller: Bond markets are skating on thin ice. US deficits are extraordinarily large for a fully employed economy with above-target inflation.

Confidence at the long end of bond markets has weakened as politics increasingly influences rate expectations. Inflation appears sticky, and while short-term rates may fall under political pressure, credibility risks are rising.

A bond market crisis — in the US, UK, or Europe — would have profound implications for equities. There’s little appetite for fiscal restraint anywhere, which makes recessions harder to manage.

Victoria Scholar: Gold has been popular among investors.

Paul Diggle: Gold is expensive relative to real rates, but valuation has not been the dominant driver recently. Structural demand from central banks and reserve managers has increased significantly. Gold reflects concerns about dollar dominance, geopolitical fragmentation, and political interference in monetary policy. As a diversifier, it remains interesting — though valuations warrant caution.

Peter Spiller: We’ve owned gold for years, but we prefer index-linked bonds as a more rational response to inflation risk. Gold doesn’t provide income and doesn’t behave reliably as an inflation hedge. When an asset is up over 60% in a year, it’s no longer a safe haven. A small allocation may be justified, but excess exposure carries real downside risk.

Victoria Scholar: Biggest opportunity for 2026?

Paul Diggle: US productivity growth has surprised strongly. If productivity settles above post-crisis norms, this could support equity markets more broadly. Diversifying globally remains attractive, but it’s also possible that equity market beta performs well again, despite valuation concerns.

Peter Spiller:
If asset prices fall sharply, savings rates will rise and a recession will follow. In that environment, index-linked bonds offer rare real returns with relatively low risk.

Victoria Scholar: Biggest risk?

Paul Diggle: Political interference in the Federal Reserve. US interest rates anchor the global financial system. If credibility is lost, the consequences would be profound.

Peter Spiller: A bond market crisis would place severe pressure on equity valuations. In that scenario, being fully invested in equities would be extremely uncomfortable.

Victoria Scholar: Thank you so much to our panel — Paul Diggle and Peter Spiller — for a fascinating discussion.