Khaberni - Last year started with nearly global consensus that the United States was the only country worthy of investment.
The year ended with rival markets outperforming the United States by a significant margin, yielding double the returns, making America seem less uniquely distinguished.
The United States did not collapse; its economy and markets were buoyed by the influx of money into artificial intelligence.
The question now is: when and how will the AI craze end, and what will that mean for the world? Here is a set of the key trends expected for 2026:
Based on a practical framework for monitoring bubbles, artificial intelligence now meets all the criteria to varying degrees; the American market driven by AI is overvalued, and it is experiencing over-investment, over-indebtedness, and perhaps most importantly, over-ownership. Today, America is the only major country where household wealth in stocks exceeds their real estate assets.
Bubbles do not burst on their own; they end when some event reduces people's ability to speculate and invest.
Throughout the past century, every major bubble from the United States in 1929 to Japan in 1989 and China in 2015 was preceded by a tightening of monetary policy by central banks.
Historically, monetary tightening led to the bursting of bubbles even before most nations had central banks. For instance, in 1720, the British craze for shares in the «South Sea» Company burst when Dutch banks stopped new loans.
During the 19th century, a series of railroad bubbles in the United Kingdom and the United States burst amidst various forms of tightening, including stricter margin lending controls and the switch to the gold standard, which limited money supply.
Thus, the AI bubble may stay inflated until liquidity starts to dry up, but this risk is not only about the Federal Reserve raising short-term interest rates, because if the Fed loses its credibility for any reason, or if capital inflows to the United States slow down, long-term interest rates are likely to rise, potentially igniting the AI bubble.
- The affordability crisis pushes interest rates up:
The «affordability crisis» in America drives new home prices to unattainable levels for young buyers, and food prices have risen by 30% compared to five years ago.
Nearly one-third of lower-income Americans spend at least 95% of their income on just necessities.
Therefore, public anger is growing. The Donald Trump administration is under increasing pressure and talks about issuing $2,000 relief checks, especially as the Democrats continue to advance in the polls before the midterm elections of 2026.
More spending will only further reinforce inflation. The Federal Reserve has already failed to meet its 2% target for 55 consecutive months.
Surprisingly, the U.S. budget deficit decreased in 2025, supported by massive revenues from tariffs, but now, under an administration that has enacted new tax cuts and plans for more incentives, it seems the budget deficit will exceed 6% of the GDP this year.
Other advanced markets experiencing less severe debt and deficit issues face resistance from the bond market, including France, the United Kingdom, and Japan in particular, where the yield on 10-year government bonds rose sharply last year.
The United States might be next in 2026 and could face severe consequences, given its excessively financialized economy relies heavily on investor confidence.
- Outperformance of global markets
The United States has never been more dependent on hot money inflows than it is now.
In 2025, foreign investors pumped $1.7 trillion into U.S. stocks and bonds, enough to fully fund the entire U.S trade deficits, contributing to the most balanced budget the U.S. has seen since such data began to be recorded, but if confidence in the United States wanes, outgoing flows will significantly weaken the dollar.
Historically, a strong link exists between a depreciating dollar and accelerating returns on global stock markets.
And the weakening of the dollar helped other countries outperform the United States in 2025, reducing the country's share in the global stock market index from its peak of 66% at the end of 2024 to 64% now.
Although «American exceptionalism» may have reached its peak, this shift still has significant room to continue, given the large gap between the U.S. market value and its 26% share of the global economy.
The recovery in international markets has been driven primarily by local investments so far.
As global investors become more aware of the risks in the United States and the opportunities elsewhere, inflows to competing markets are likely to increase in 2026.
International markets are trading at a discount of up to one-third compared to the United States, despite improving fundamentals in their favor.
Having lagged behind the United States for the past 15 years, corporate earnings growth is now strong in international markets, even stronger in emerging markets.
Over the past decade, only half of emerging economies have recorded faster per capita GDP growth compared to the United States, but this ratio sharply rose last year, on its way to reaching nearly 90% in the next five years.
- Projected sparkle for quality stocks
Speculative fervor sweeping through global markets has cast a shadow over quality stocks, a category characterized by high return on equity, strong earnings growth, and low financial leverage.
The AI boom has fueled risk-taking behavior and the rise in prices of stocks with low profitability, high debt, and high volatility. However, investors moved away from quality stocks last year.
In terms of quality stocks, 2025 was generally one of the worst relative declines ever in advanced markets, and the worst in emerging markets, but the situation is tense now.
With Google searches for «AI bubble» rising significantly, investors are looking for safer options.
Quality stocks, as a category, have outperformed global indices by about 2.5% annually over the past thirty years, translating to massive cumulative returns during that period: about 2600% compared to 1200%.
The focus here is on a subset of quality stocks that are trading significantly below their long-term true value.
These are primarily concentrated in the industrial sector, followed by financial companies and non-essential consumer goods companies.
Often after similar periods of weak performance and these relatively low valuations, these stocks have achieved double-digit returns. This puts them in a good position for recovery in 2026.
- Masks hiding China's issues
Many discuss the role of artificial intelligence in supporting the U.S. economy and markets. A similar scenario is unfolding in China, where exports save the economy while AI drives the market.
After years of underperformance, global investors rated several Chinese markets as «uninvestable,» making them unreasonably cheap and very attractive by the end of 2024.
Thus, they rebounded strongly last year, primarily thanks to optimism fueled by AI, as except for the technology sector, the rest of the Chinese stock market suffered negative earnings growth.
This reflects the reality that the Chinese domestic economy is growing with difficulty, burdened by a collapsing real estate market, excessive debt, and a shrinking population.
But the strength of the export sector is its distinguishing feature, especially as it expands its share in global markets and supports the economy as a whole. Without the export boom, nominal GDP growth would not exceed 3%, much lower than the officially announced rate of about 4%.
Analysts and economists continue to urge China to launch a new stimulus package, but their biases obscure the underlying problems.
China's total debt, including household and corporate debts, has exceeded 300% of GDP, as has its inflated fiscal deficit (including its influential local governments) at 11% of GDP.
Given the lack of funds needed for stimulus, Beijing will face severe difficulty in increasing spending, and the domestic economic performance will continue to decline.
- «Chinese Dumping» to be a focal discussion point
With increasing indications that Donald Trump may have stopped raising tariffs, given the affordability crisis at home, a strong global trade issue emerges: Chinese export dumping. Over the past two years, China has achieved a massive increase in export volumes by reducing prices and curbing the value of the yuan.
As a result, China continues to gain significant market share globally at the expense of competing export nations, including Germany, France, and Japan among advanced economies, and several established industrial powers in the developing world.
China is striving hard to reduce its reliance on sales to the United States, directing its exports to other countries, which weakens more factories across the globe.
Southeast Asian, Eastern European, and African countries, which have seen a significant drop in manufacturing rates, especially last year, are the most affected.
Signs of sharp reactions are increasing. The number of trade investigations related to Chinese dumping has more than doubled since 2023, reaching 120 worldwide.
From Japan and Canada to Mexico and Thailand, several countries have begun imposing retaliatory tariffs on China. The European Union is considering implementing «Made in Europe» rules. And recently, in Beijing, French President Emmanuel Macron warned of intolerable trade imbalances.
Given its internal economic problems, it is unlikely that Beijing will listen. Thus, in 2026, «Chinese dumping» may become a target of global anger, rivaling «Trump tariffs».
- South America shifts sharply right
The rightward shift, which began two years ago, may complete its sweep of the largest South American countries this year.
As former Chilean President Sebastian Piñera once said, Latin America leans left in times of prosperity and right in times of hardship. The situation now is not good. Voters are increasingly concerned about crime, corruption, and inflation.
Right-wing leaders took power two years ago in Argentina, and won last year in Ecuador and Chile, and are expected to win again this year in Peru and Colombia. The grand prize is Brazil. There, the left-wing President Luiz Inacio Lula da Silva leads the race, but he could face strong competition in the second round from the market's favorite candidate, São Paulo's right-wing governor, Tarcisio de Freitas.
For decades, stock markets in the region have performed remarkably better under right-wing leadership.
Last year, this region was home to the best-performing markets in the world, posting an average increase of over 50%, compared to 30% in emerging markets overall and 16% in the United States.
- Global market liberalization
What was called «the Ministry of Government Efficiency» may be over, but Trump's market liberalization efforts have not ended.
Several indicators suggest a decrease in regulatory costs in the United States, and many countries around the world are now trying to compete.
Even Europe, «Silicon Valley of regulations,» seems to realize that inventing new rules is not necessarily in the interest of its economies.
After reaching unprecedented record levels in 2024, the United States issued less than half the number of new economically significant regulations last year, while the European Union issued barely a quarter of the usual new «legislative rules,» with expectations for further reductions.
One proposal could reduce the number of companies subject to the European Union's environmental sustainability regulations from about 50,000 companies to less than 2,000.
Similar regulatory reductions in emerging markets: Argentina abolished rent controls, tripling the supply of housing units.
And «streamlining bureaucratic processes» has reduced the time it takes to clear goods through customs in Malaysia from days to minutes.
India is quietly establishing its own authority to deregulate the public sector, albeit much more quietly than what the United States has experienced.
There it is, the quiet rebellion against the regulatory state is gaining momentum, and is likely to accelerate this year.
- Collapse of immigration with several Western countries closing their doors,
The economic impact of this historic turn against immigration is likely to increase and spread in 2026. Clearly, the collapse is staggering, and not just in the United States.
The latest estimates suggest that from an unprecedented peak in 2023, net migration last year dropped by 85% to only 500,000 new arrivals in the United States, and by 50% to 1.2 million in the European Union.
In the United Kingdom, migration peaked the previous year, followed by a sharp decrease of the same magnitude. Net migration dropped by 75%, reaching 200,000 immigrants.
Outside the United States, the anti-immigration campaign has been less intense and less covered in the media, but it has not been without firmness.
The European Union reduced cross-border movement by more than 20% during the first nine months of 2025, expedited the rejection of asylum applications, and provided financial and diplomatic incentives to foreign countries to accept returnees and prevent departure.
Countries that previously attracted immigrants, such as Canada and Australia, have closed their doors, leading to a decrease in the flow of international students and a reduction in the number of permanent residency permits.
Even in Spain, perhaps the only major Western country still open, opposition to immigrants in polls is growing, enhancing the prospects of right-wing parties.
Amid widespread concerns that artificial intelligence threatens jobs, the continuation of anti-immigration campaigns will push in the opposite direction, causing labor forces to shrink and giving unions more bargaining power, potentially increasing labor costs and exacerbating inflationary pressures in 2026.
