Outlook for 2026: why more records could be broken

Another record-setting year has been forecast for the S&P 500 index after a City bank’s 2026 global markets outlook backed Wall Street’s AI-led rally to withstand early headwinds.

UBS’ base case is that the S&P 500 will reach 7,500 next year, representing a further 10% upside after the US benchmark last night recorded its best session in four weeks.

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A 6% bounce for NVIDIA Corp (NASDAQ:NVDA) in its strongest showing since April combined with relief over the prospect of an end to the US government shutdown to leave the S&P 500 index at 6,832.

The recovery in US sentiment following last week’s tech valuation jitters helped the FTSE 100 index to move deeper into record territory, hitting 9,897 early in today’s session.

UBS’ 368-page outlook document for 2026-27, which features more than 750 charts and 25 essays, warns that the global economy faces a soft patch in the next four to five months as tariffs feed through to prices and exports.

However, this is likely to form part of a tale of two halves as the bank believes the global economy is poised to accelerate in 2026.

UBS said: “Business and consumer confidence has improved, the global credit impulse has turned positive, and we expect several major advanced economies to benefit from additional fiscal stimulus.”

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In terms of equities, the speed bump as tariffs worsen the growth-inflation mix means the market should initially consolidate and high-quality stocks outperform.

Towards the end of the first quarter, UBS expects to see a broadening of the rally into lower-quality cyclicals.

It added: “Base case, we see the S&P 500 rising to 7,500 in 2026 driven by about 14% earnings growth, nearly half that from the tech sector.

“The contribution from valuation is likely to be a small negative. However, as consistent inflows into the market have beaten traditional valuation models, we acknowledge that risks to multiples and the market are skewed to the upside.”

UBS expects that Europe will deliver decent earnings growth and provide 8% returns, with Chinese equities and its currency the preference in emerging markets.

It said: “China is in its sixth year of the property downturn, but the growth drag is diminishing and ‘new economy’ sectors and resilient sectors continue to compensate.”

For the fourth year in a row, the bank sees gold outperforming industrial and energy commodities.

It said: “Gold’s strong performance, in our view, is a reflection of a variety of concerns among a growing number of market participants seeking long-term diversification of portfolios.

“Gold remains under-owned relative to total assets and we believe there’s room for allocations to keep rising.”

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The bank remains optimistic about the promise of artificial intelligence (AI) but notes that nine companies have driven three-quarters of the growth in US equity market capitalisation in the last 12 months.

Addressing potential comparisons with the dot-com bubble, the bank said that micro-company fundamentals suggest the rally today is more justified than the 1990s one. 

It said: “Margins and earnings are much stronger, as is free cash flow. Debt to underlying earnings or fixed charges are significantly lower. 

“The macro is on shakier foundations, however. Consumer optimism and the labour market are much weaker; policy room is more limited. Globalisation, a driver of productivity, is in retreat.

“The drama of a bubble inflating and exploding isn’t inevitable. We could just see the market rising strongly in 2026 and then stalling in 2027. The key is to monitor pass-through of AI productivity to non-tech companies.”