Three trends to watch in 2026: AI transformation, the K-shaped economy, social and political volatility.
This morning, I attended a beautiful holiday performance at my sons’ school. There was uplifting music, recitation of poetry and beloved stories, and gift giving to local charities of toys, food and funds. While my boys are 14 years old now and have deep voices and towering heights, I love how they still look to find me in the crowd, to make sure I am watching them. The excited waves from five-year-olds are a thing of the past (nowadays I just get a more subtle nod), but their eyes still sparkle when they see me. And my heart still explodes with love to see them.
Sometimes, the more things change, the more they stay the same. As we consider the outlook for next year, there is a truth to that sentiment for markets and economic conditions as well. While there is often pressure in our industry to make some big, bold predictions for markets to hurtle into space or crash down to earth, I will do no such thing. Offering a balanced view may not be quite as exciting as the former approaches, but it is what I offer you today after reviewing some key trends that will remain with us in 2026.
First, I will address the largest and most obvious one—AI. Rapid evolution has increased AI’s potential to become a transformative economic force, with promising implications for productivity, growth and competitiveness across industries. AI is driving a structural shift that demands significant capital investment to retool the economy for a new era, much like we saw in the past with electricity, railroads and the internet. It is not a passing trend—but rather the foundation for the next wave of economic progress.
With adoption accelerating, the hope is that tomorrow’s stock market winners will reflect a broader segment of companies reaping the benefits of a transformative productivity lift. This does not by any means translate to a necessary downturn for the so-called hyperscalers (Amazon, Microsoft, Google, Meta, Nvidia, Tesla and Apple). That said, we suspect that their track record of growing earnings will come under renewed scrutiny as they embark on unprecedented AI capital investments at a time when their price valuations are so high.
This phase of the investment cycle will be a double-edged sword. On one hand, it will spur the economy to swap out old tools for new ones—which economists call “capital deepening.” But it will also continue to confound us with a narrow investment landscape where market risk is highly tuned to the successes and failures of these hyperscalers.
With that, expect 2026 will have more of the same dynamic—this small group of companies is poised to continue to play an outsized role in shaping sentiment across global capital markets.
Turning to other megatrends, it is likely the top 10% of income earners will continue to drive economic momentum, even as middle-income households are increasingly challenged.
While on the surface the average household’s disposable income will get a boost from favorable tax policies, the cumulative effect of sticky inflation eroding purchasing power will strain consumption and hinder wealth effects. As in 2025, the top 10% of income earners will be the driving force of consumption as their incomes increasingly shift towards non-labor sources that include dividends, interest and rent. They stand to reap the benefits of the wealth effect of strong growth in housing and stock markets. And tax changes also disproportionately benefit these upper-income households, primarily through the increase of the state and local tax (SALT) cap deduction from $10,000 to $40,000.
We see economic performance maintaining its K-shaped divergence. This year, the top 10% has generated 50% of total consumption expenditures across both essential services (health care, legal and financial services) and discretionary categories (leisure and hospitality). The risk of this concentration cannot be understated as it makes the broader economy vulnerable to shocks from changes in the stock market or housing market.
It also contributes to the third and final trend that will remain with us in 2026—social and political volatility.
While economic growth may appear reasonable on the surface, it is so concentrated that affordability and inequality could set off social and political flashpoints that, at best, fuel dialogue, discussion and debate. At worst, we run the risk of increasingly divisive rhetoric, shutdowns and heightened geopolitical risk.
In 2026, we have a midterm election, an upcoming change in Federal Reserve leadership, more budgets to pass and tariffs and global relationships to navigate.
On that last point, the rules-based global order, which for decades underpinned international trade and investment, continues to erode. Last year was marked by the dismantling of old certainties, but 2026 will likely be defined by the emergence of new rules of the game. What those rules will look like remains uncertain, but one thing is clear: the U.S. will continue to leverage its economic, political and military power to reshape itself—and the world.
With that, I offer all those celebrating holidays my very best wishes on behalf of the entire RWA team. We hope you find joy, love and connection in these days of celebration and that your conversations are full of hopeful plans for your futures. We can’t wait to hear what those hopes and dreams look like and we’re ready to provide support, advice and implementation assistance as always.
It is our honor and privilege to work with you and your families, and to be with you as each calendar page turns and the times change, and yet somehow the important things remain the same.
Written by a human.