Pessimists are losing confidence. After financial markets and the global economy withstood US President Donald Trump’s tariff deluge, stretched tech stock valuations and geopolitical turbulence in 2025, investors have entered this year feeling largely bullish. Global asset managers’ cash holdings fell to a record low at the end of last year, according to a survey by Bank of America. The S&P 500 is expected to rise around another 10 per cent this year, according to the average forecast of nine major investment banks polled by the FT in December. The extraordinary US operation in Venezuela last weekend has done little to change the mood.
There is reason to be optimistic about 2026. Capital expenditure in AI — which helped offset strains on the US and global economy last year — is expected to continue. America’s cooling labour market is likely to motivate the US Federal Reserve to cut interest rates further over the year, while tax refunds from Trump’s One Big Beautiful Bill Act will provide another economic boost. In Europe, there is hope that a lower cost of credit, fiscal stimulus in Germany and higher defence spending will support growth.
Investor ebullience also reflects an adjustment from excessive gloominess last year. Many economists underestimated just how resilient and versatile businesses and global supply chains can be amid rising tariff barriers and uncertainty. Analysts are right to be wary of making the same mistake this year. But they should be cautious about overcorrecting too.