Global Markets Outlook: Where Smart Money Is Moving in 2026

The global financial markets are entering 2026 with a fundamentally different character than what investors experienced in the previous decade. The easy money era is firmly behind us, and a new paradigm defined by selective risk taking, disciplined underwriting, and an increased focus on cash flow, resilience, and transparency has emerged. Understanding where institutional investors are deploying capital has become essential for individual investors seeking to protect and grow their wealth in this evolving environment.

J.P. Morgan Global Research is positive on global equities for 2026, forecasting double-digit gains across both developed markets (DM) and emerging markets (EM). This bullish outlook is buttressed by factors including robust earnings growth, lower rates, declining policy headwinds and the continued rise of AI.

This comprehensive guide explores the key investment themes shaping 2026, from artificial intelligence and the energy transition to private credit and precious metals. We examine where sophisticated institutional investors, family offices, and hedge funds are positioning their portfolios, and what these moves signal for retail investors looking to build wealth in an uncertain world.

The AI Supercycle: The Dominant Investment Theme of 2026

Why Artificial Intelligence Remains the Central Focus

The AI supercycle is the real game changer. We are seeing record level of CapEx and rapid earning growths, especially in the U.S. equity market. AI isn’t just a tech story anymore. It’s spreading into banks, healthcare, logistic, and utilities. For investor, this is the anchor theme driving our bullish outlook on USA stocks.

Fidelity International calls AI “the defining theme for equity markets” in 2026. The BlackRock Investment Institute says the tech will likely “keep trumping tariffs and traditional macro drivers.” NatWest spies “a powerful engine of economic expansion.” “The biggest risk, to us, is not having exposure to this transformational technology,” JPMorgan Wealth Management says.

The artificial intelligence revolution represents a structural shift in how economies operate and how value is created. Unlike previous technology cycles that were largely consumer driven, past technology cycles were demand-led and largely consumer-driven. AI should be viewed as infrastructure, embedding itself directly into the economy in a manner closer to electricity than consumer hardware.

The Evolution from AI Hardware to AI Adoption

AI is the top driver, and communication services stocks are the prime beneficiary. Fidelity portfolio managers see the evolution of AI as the most important sector catalyst, with the monetization of AI models still in its early innings. Communication services stocks are tracking to be the best performing sector in 2025 thanks mostly to the AI trade, and that momentum is expected to continue.

Northern Trust declares ‘the era of passive beta’ is giving way to environments where ‘weights in indices don’t capture the productivity or valuation benefits’ of fundamental analysis. RBC Global Asset Management agrees, noting that the shift from AI capex to AI adoption will separate winners from also-rans – and only active investors positioned to understand the operational detail will capture the upside.

AI Driven Infrastructure Demand

If there’s one asset class everyone loves, it’s infrastructure. AI power demand, grid modernisation, energy transition, reshoring – it all requires massive capital investment. Macquarie Asset Management projects 10% annual returns in 2026, with utilities entering what they call a ‘capex super-cycle’. Asia alone will see infrastructure investment grow from $1.61 trillion to $2.22 trillion by 2030. Brookfield’s 2026 outlook calls this a ‘once-in-a-generation investment supercycle’, driven by the convergence of digitalization, decarbonization, and deglobalization.

Aviva Investors identifies AI-driven inflation as 2026’s most overlooked risk. Their logic: massive AI infrastructure investment creates supply bottlenecks – Deutsche Bank projects $4 trillion in data-centre capex by 2030 – that could push up prices faster than productivity gains offset them. If inflation surprises to the upside, central banks may not just pause rate cuts but could be forced to hike again. Markets aren’t pricing this scenario.

Sector Rotation: Where Institutional Investors Are Repositioning

Communication Services: The New Sector Leader

We are witnessing a sector rotation. This phenomenon occurs when large institutional investors, the smart money, move capital from one area of the market to another to adapt to changing economic conditions. The capital that fueled the hardware rally is now looking for new homes. Specifically, investors are targeting sectors that offer a combination of reasonable valuations, steady cash flow, and defensive stability.

The recent shift in interest rate policy is encouraging institutional investors to move capital into undervalued sectors with strong cash flows. Communication services stocks offer a compelling mix of reasonable valuations and earnings growth driven by resilient digital advertising spending. The healthcare sector offers a unique combination of defensive stability and explosive growth potential from pharmaceutical innovations.

Healthcare: Combining Defense with Growth

Beyond AI, institutional investors should also pay attention to both energy and healthcare. For the former, they believe increased energy demand from data centres (the powerhouse of the AI revolution) will spur greater interest in both renewable energy sources like solar and wind and more traditional sources like natural gas and nuclear energy. On the other hand, the interest in the healthcare sector would be driven by an interest in defensive sectors, as volatility continues to be an issue. “Furthermore, 2026 is expected to be a strong year for mergers and acquisitions (M&A) in this space. Large pharmaceutical companies facing patent expirations are cash-rich and looking to buy smaller biotech innovators to replenish their pipelines. This combination of defence, high-growth innovation, and M&A potential creates a profile known as Growth at a Reasonable Price (GARP).”

These companies benefit from the Silver Tsunami, the aging global demographic that requires increasing levels of medical care. While there are risks, such as potential government policy changes regarding drug pricing, the sector generally exhibits lower volatility than the wider market. This means XLV tends to fluctuate less violently than the S&P 500, offering a smoother ride for investors.

Regional Equity Outlook: Diversification Returns

United States: Still the Market Leader with Caution Warranted

2026 will be a strong year for risk assets as you have unusually pro-cyclical policy mix that’s supportive of earnings. And that frees up markets to shift the focus from global macro concerns, which of course have dominated this year, to more micro asset specific narratives. Particularly those related to AI CapEx investment. And I think such a constructive environment really calls for a risk on tilt. We recommend equities over credit and government bonds, with a preference for U.S. assets.

Looking at the S&P 500, J.P. Morgan Global Research estimates the AI supercycle driving above-trend earnings growth of 13–15% for at least the next two years.

“Our year-end 2026 target for the S&P 500 assumes that the economy and earnings will remain resilient,” Yardeni said in a note. “Our odds of a severe correction or a bear market, triggered by either recession fears or an actual recession, remain low at 20%.”

Emerging Markets: The Beneficiaries of Dollar Weakness

Emerging market equities outperformed U.S. equities in 2025, and that trend appears primed to potentially continue in 2026. Even as tensions continue to churn on the world stage, the outlook for 2026 is positive for the asset class, according to the Chief Investment Office (CIO). “Typically, when you see geopolitical activity rise, you get a stronger dollar, not a weaker dollar like we’ve seen recently,” says Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank. “But a weaker dollar benefits emerging markets.”

Geographic diversification benefited investors in 2025, which is unusual; the US underperformed some other major markets for the first time in nearly 15 years. Equity returns in Europe, China, and Asia generated almost double the total returns for the S&P 500 in dollar terms as the US currency declined. While US equities were driven by earnings growth, particularly for large technology companies, outside the US there was a more even balance between improving earnings and rising valuations. The gap in growth-adjusted valuations between US equities and the rest of the world narrowed last year.

Europe and Japan: Specific Opportunities

Activity momentum in the eurozone is likely to improve in 2026, thanks to better credit impulse and the rollout of fiscal stimulus. Earnings are expected to grow by 13%+ next year, supported by stronger operating leverage, reduced tariff headwinds, easier comps and better financing conditions.

Sanaenomics — the economic policies of new Japanese Prime Minister Sanae Takaichi — and corporate reforms will likely propel Japanese equities in 2026. Businesses will likely focus on unlocking excess cash, which could in turn fuel capital investment, wage growth and shareholder returns. In addition, Sanaenomics is expected to revive middle-class spending and strategic investments, providing tailwinds for the market.

Across equity markets, we favor under-owned countries like France and the UK against shorts in more crowded markets like Germany and high-flying emerging markets like Brazil and India.

Private Credit: The Institutional Darling of 2026

Understanding the Private Credit Boom

Private credit’s evolution is expected to accelerate in 2026, transitioning from a high-growth alternative into a foundational institutional allocation. With banks remaining constrained by regulation and capital requirements, private lenders will continue filling the financing gap.

The private credit sector, encompassing strategies from direct and senior lending to asset-backed credit, is expected to represent a massive 58% of all projected alternative fund flows in 2026, up from $112 billion in 2025.

Demand for private credit continues to be underpinned by structural forces, including persistent financing needs among middle-market companies, infrastructure developers and asset-backed borrowers, JPMorgan said in its Alternative Investments Outlook 2026. According to Goldman Sachs, private credit has grown into a multi-trillion-dollar market and has become a core allocation for many institutional investors. Pension funds, insurers and endowments that once treated the asset class as a niche alternative now see it as a long-term fixture of their portfolios.

Key Sectors for Private Credit Investment

Looking to 2026, priority sectors include energy infrastructure, digital infrastructure, defense and national security, and next-generation manufacturing—all requiring patient institutional capital.

Emerging opportunities in music royalties and sports franchises offer compelling risk-return profiles with long-duration, inflation-resistant cash flows uncorrelated to traditional markets. Music royalties represent a compelling opportunity in the alternative investment landscape, providing access to long-duration assets that generate consistent cash flows uncorrelated to traditional market cycles. With intellectual property rights typically lasting 70 years beyond an artist’s lifetime, these investments offer exceptional longevity with predictable, inflation-resistant revenue streams. What distinguishes music royalties from conventional private market strategies is their unique risk-return profile—delivering steady income without requiring an exit event to realize returns. High-quality music catalogs can be effectively self-liquidating through their ongoing yield, potentially generating mid-teen returns through distributions alone.

Risks in Private Credit Markets

High interest rates have pushed up borrowing costs, leaving a growing share of companies struggling to cover their private credit debt payments, warned Goldman Sachs. Around 15% of the borrowers are no longer generating enough cash to fully service interest, and many others are operating with little margin for error, data provided by the bank showed. While rate cuts could offer some relief, the investment bank said they would only modestly ease the pressure rather than fix underlying weaknesses. Morningstar has also warned about worsening credit profiles among both high- and low-quality borrowers in 2026 as higher interest rates, especially relative to the ultra-low levels between 2010 to 2021, filter through balance sheets.

2026 will also test underwriting discipline. As refinancing activity picks up, stress will emerge among over-levered borrowers. Default rates are expected to rise modestly, separating managers with rigorous credit selection from those that relied too heavily on benign conditions. Investors will increasingly differentiate between credit strategies—favoring senior secured, asset-backed, and opportunistic credit over aggressive covenant-light structures.

Alternative Investments: Beyond Traditional Stocks and Bonds

The Rise of Private Markets

Goldman Sachs projects alternatives allocations will grow from 5% to 15-20% of institutional portfolios. Northern Trust sees ‘the era of passive beta giving way’ to more active, private-market-oriented approaches, with evergreen and continuation fund structures proliferating as managers seek permanent capital. PIMCO points to private credit’s 3.2% annual outperformance over public credit since 2000. Semi-liquid fund structures – ELTIFs in Europe, LTAFs in the UK – are opening private markets to wealth clients and, increasingly, retail investors. Assets in these vehicles nearly tripled between 2020 and 2024, and the trajectory is accelerating.

A wave of democratization in finance has reshaped how capital is allocated and who can participate in alternative asset classes. Discussions around regulatory reforms, fractional ownership and digital investment platforms have moved into the mainstream. What once required significant wealth and exclusive advisory networks is now increasingly accessible with a few clicks. Individual investors can now gain exposure to private equity, real estate and private credit – sometimes even fractional stakes in high-value assets. This trend is not confined to alternatives: traditional instruments such as bonds, historically reserved for institutions, are increasingly being fractionalized, enabling broader portfolio diversification for individual investors.

Infrastructure: The Investment Theme for a Generation

Private infrastructure complements hedge funds and other alternative investments by providing predictable cash flows and exposure to long-term structural growth drivers such as digital connectivity and renewable energy. Both asset classes reinforce the importance of building a diversified allocation to alternatives that can withstand evolving macroeconomic conditions and may deliver stability over time.

Private equity / credit / infrastructure and hedge funds are to be kept on the radar for 2026.

Active Management Makes a Comeback

When everything’s correlated, index funds win. When dispersion is high – as it is now, and as AI volatility amplifies – active managers can add real value. The outlooks are unanimous: 2026 favours selectivity.

Diversification should continue to offer potential for better risk-adjusted returns in 2026. Investors should look for opportunities for broad geographic exposure, including an increased focus on emerging markets. They should seek a mix of growth and value stocks and look across sectors. And they may watch for the possibility that stocks move less in lockstep, creating a good opportunity for picking individual names. “We also focus on increased alpha, as stock correlations have fallen and are likely to remain low.”

Gold and Precious Metals: Safe Haven Assets in Uncertain Times

The Gold Bull Market Continues

Central bank and investor demand for gold is set to remain strong, averaging 585 tonnes a quarter in 2026. Gold prices posted continuous gains in 2025, climbing as much as 55% and surpassing $4,000/oz for the first time in October. Trade concerns, reduced demand for the U.S. dollar and increased central bank buying combined to create ideal conditions for this historic upswing.

“While this rally in gold has not, and will not, be linear, we believe the trends driving this rebasing higher in gold prices are not exhausted,” said Natasha Kaneva, head of Global Commodities Strategy at J.P. Morgan. “The long-term trend of official reserve and investor diversification into gold has further to run. We expect gold demand to push prices toward $5,000/oz by year-end 2026.”

HSBC says gold could hit $5,000 in the first half of 2026. Goldman Sachs forecast a $4,900 price target for gold while Morgan Stanley says it could hit $4,800 by the last quarter of the year.

Central Bank Buying Driving Structural Demand

Consensus estimates show that central banks should continue to purchase gold at a pace of around 800 tonnes over 2026, which is equivalent to around 26% of annual mine output. Central bank purchases reflect a long-term portfolio-diversification trend among reserve managers, and we anticipate that this trend still has several years to run, implying that gold will benefit from a solid underlying demand profile.

Central banks remain one of the strongest forces behind gold’s structural story. Several economies hold more than half their total reserves in gold, while others, including China and Japan, maintain single-digit exposure. That imbalance alone signals how much reallocation potential still exists across the system.

The accumulation trend didn’t slow in 2024-2025; it accelerated. China continues building strategic reserves. Turkey uses gold to stabilise currency volatility. Russia leans on gold as a sanction-resistant asset. And India along with several Middle Eastern economies see gold as long-term diversification rather than a short-term hedge.

Silver: The Industrial Metal Opportunity

Silver: After breaking above the resistance zone following a 120% surge in 2025, silver has entered price-discovery territory. We’re dealing with a market that finally has all three forces aligned: tightening supply, rising industrial demand, and a technical breakout setup that hasn’t appeared in more than a decade. Silver is no longer the side story—it’s one of the most asymmetric opportunities in commodities right now. As for forecasts, the average of major banks places silver in the $56-$65 range for 2026. That’s the conservative view. Technical models stretch further—towards $72 and $88, and potentially higher if the gold/silver ratio really compresses.

Structural Forces Supporting Precious Metals

In the middle innings of a structural bull cycle, five structural forces continue to shape the gold market. These trends are unlikely to reverse in 2026 and, collectively, point to a supportive backdrop for prices. Importantly, these drivers are separate from short-term factors such as volatility spikes, risk-asset sell-offs, or stagflation fears that could temporarily boost gold demand: 1. Alternative fiat and global debasement trade. Global sectoral debt rose to $340T in mid-2025 and, notably, the government share of that debt also reached a record 30%. At 3-4x global GDP, debt levels raise concern for investors. As record debt and stubborn inflation push long-term yields higher, gold becomes an attractive hedge against duration risk and currency debasement.

Understanding Smart Money Movement Patterns

How Institutional Investors Differ from Retail

Institutional investors are professional investors who pool together capital—sometimes referred to as Wall Street’s “smart money”—and invest on behalf of others, typically at much higher volumes than retail investors. These professional investors include pension funds, mutual funds, hedge funds, banks, insurance companies, endowment funds and other big investors. Institutional investors account for large and frequent trades on behalf of organizations they represent, and institutions account for a significant percent of stock trading volume. Because of their dominance, institutional buying or selling can lead to big price moves in individual stocks and in the market overall.

While retail traders chase short-term volatility, smart money is quietly positioning for 2026. This divergence between institutional strategy and retail behavior has defined every major market cycle in modern financial history. Crypto is no exception. In fact, the gap between the two has never been wider.

Major capital does not move reactively. It moves anticipatorily. Smart money understands that the best returns are made before the narrative becomes obvious.

Following the Money: Key Signals

84% of institutional investors expect to increase sustainable assets under management in the next two years, with energy efficiency and renewables as top priorities. The pattern is clear: while institutions are allocating to sustainable themes, insiders in volatile, high-growth sectors are taking profits.

The institutional moves tell a clearer story than any headline. While some insiders are selling, the smart money is rotating hard into tangible assets and away from pure narrative plays. The pattern is unmistakable: hedge funds and big investors are loading up on tech staples like Micron and Nvidia, signaling a bet on the physical infrastructure of AI. This isn’t about abstract ideas; it’s about companies building the chips and memory that power the next wave. This rotation fits a broader, more fundamental shift. With rates staying ‘higher for longer,’ cheap balance sheets and tangible assets start to look a lot more valuable. In a world where capital has a real cost, the math favors companies with hard assets and low debt over those priced on future promise alone. The institutional playbook is shifting from “growth at any price” to demanding proof in the numbers.

Family office managers are conservative but not scared like short-term institutions seem to be at the moment. Instead, they are interested in raising allocations to stocks and crypto. This repositioning to more risk-on assets comes as they are reducing cash holdings, indicating positive long-term prospects from these institutions.

Key Risks and Challenges for 2026

Market Polarization and the K-Shaped Economy

Polarization is intensifying. In equity, there is a clear split between the AI-driven winners and the rest of the equity market. In the economy, strong CapEx standing contracts to weaker labor demand and consumer spending. And also across households, the divide between high and low income is widening, creating a classic K-shaped recovery. How these polarization are going to evolve is going to be critical for macro trends and market performance in 2026.

“AI could further amplify polarization within an already unhealthy K-shaped economy, and market concentration could reach new highs as a result. In such an environment, broad sentiment measures remain prone to sharp swings, even though underlying trends remain intact and fundamentals solid.”

Geopolitical Uncertainty Remains Elevated

Gold volatility (GVZ) remains elevated albeit retreating from recent highs. Together with the huge jump in spot prices, this signifies that concerns about geopolitical tail risks, as well as worries about higher inflation and fiscal stress, are unlikely to subside in 2026.

Governments continue adopting policies that go against pre-COVID-10 globalization trends, while companies and policymakers are prioritizing control of supply chains, access to energy, materials, defense capabilities and technology. “Policymakers are keen to promote their visions of national and economic security through less open commerce and more local control of supply chains and key technologies,” Byrd says. “Multinationals and sovereigns will adapt to this reality in an accelerating pace in 2026, with some facing tougher choices than others.”

Volatility and the Need for Agility

While we believe that fundamental, CapEx, sales growth, earnings, and buybacks will support the AI sector, we can’t rule out episodes of volatility or temporary retracement. In short, 2026 will be a year where investor needs to stay agile. Keep an eye on both the upside and the downside, and be ready to pivot as the data and the headline evolves.

There were also concerns in 2025 that have gone unaddressed and that will likely resurface in 2026, including the rise of long-term borrowing costs across the globe and persistently large government deficits. “Overall, the market environment remains fragile, and investors must navigate a landscape where risk and resilience coexist.”

Practical Investment Strategies for 2026

Diversification Across Regions and Asset Classes

International diversification should be the priority of institutional investors in 2026, especially those overweighted in the US market. This is a good way to reduce risk as well as increase returns.

Global equities are expected to keep climbing in 2026 but not as strongly as last year, with diversification across styles, sectors, and regions potentially giving a boost to investors. Diversification was a core theme for Goldman Sachs Research last year. Investors who diversified across regions in 2025 were rewarded for the first time in many years, and our analysts expect diversification to continue as a theme in 2026.

History shows that concentration in trending sectors can heighten portfolio risk. Today, information technology stocks dominate US public markets, with the Magnificent 7 accounting for nearly one-third of the S&P 500 Index. This underscores the importance of diversification across sectors and asset classes. Private markets provide exposure to sectors less correlated with public markets, reducing vulnerability to single-theme drawdowns. Institutional allocations have steadily increased, reflecting their ability to enhance diversification, reduce volatility, and deliver returns that are less correlated with traditional markets.

Balancing Growth with Defensive Positions

Rather than viewing these sectors as competing alternatives, investors should view them as complementary. As the economic landscape shifts in 2026, combining the aggressive earnings momentum of Service Tech with the defensive reliability of Healthcare offers a prudent way to navigate the market. By stepping out of the crowded hardware trade and into these diversified sectors, investors can position themselves for a balanced and profitable year.

Reducing Cash Exposure

After two years of 5%+ money market yields, every major manager says the same thing: don’t sit in cash. Rate cuts are coming (even if slowly), and reinvestment risk is real. The advice is universal: extend duration, lock in yields, get invested.

Adding Gold Allocation

Many financial advisors recommend allocating no more than 5% to 10% of your overall portfolio to gold. The precious metal can minimize risk via diversification and help hedge against inflation, but it doesn’t generate income and its prices can be volatile. The optimal allocation also depends on your timeframe. For instance, gold may work best in a portfolio if the investor can leave it untouched for at least five years.

The Investment Themes That Will Define 2026

Theme 1: The AI Infrastructure Build-Out

The 2026 thematic outlook points to AI, energy demand, geopolitical shifts and demographic trends as critical forces shaping industries, economies and global markets performance.

AI adoption should be a critical driver of stock performance in 2026.

Non-tech sectors may perform strongly this year, and investors may benefit from stocks that see positive spillover from technology companies’ capital expenditures. There’s likely to be a rising focus on companies outside of the technology sector that will benefit as new artificial intelligence (AI) capabilities come to fruition.

Theme 2: Energy Transition and Power Demand

The Future of Energy theme now has a stronger political element as higher electricity bills could influence voters in different parts of the world.

The smart money is also looking beyond the hype to the physical power needed to run it. The buildout of AI data centers is creating a key structural demand for power generation.

Theme 3: Societal Shifts and Demographics

Societal Shifts include the impacts of AI on the job market, longevity, demographic challenges and shifting consumer preferences.

Theme 4: Multipolar World and Deglobalization

The three top-performing thematic categories in 2025 fell within the Multipolar World theme, demonstrating how geopolitical and industrial shifts are directly influencing markets.

“Global fragmentation, a depreciating dollar, US Federal Reserve independence, and AI capex trends are themes to watch in 2026 and beyond.”

Conclusion: Positioning for Success in 2026

The investment landscape of 2026 presents both significant opportunities and meaningful challenges. Goldman Sachs Research analysts remain constructive on equities for 2026 as earnings continue to grow, but forecast lower index returns than in 2025, amid a broadening bull market.

As the global investment industry turns the page on a transformative 2025, alternative investments are entering 2026 with renewed momentum—and sharper expectations. The era of easy money is firmly behind us, replaced by a market environment defined by selective risk-taking, disciplined underwriting, and an increased focus on cash flow, resilience, and transparency. Private equity, hedge funds, private credit, real assets, and digital assets are no longer peripheral portfolio tools. They now sit at the core of institutional allocation strategies. But the rules governing their success are changing. In 2026, capital will not simply chase returns—it will demand durability, adaptability, and demonstrable value creation.

The smart money is clearly signaling several key themes for investors to consider:

1. Artificial Intelligence remains the dominant investment theme, with opportunities expanding beyond hardware into infrastructure, power generation, and adoption across industries
2. Diversification is essential, both geographically and across asset classes, as market concentration poses risks
3. Private credit and alternative investments are becoming core allocations for sophisticated investors seeking yield and diversification
4. Gold and precious metals continue to serve as important portfolio hedges against geopolitical risk and currency debasement
5. Active management is making a comeback as market dispersion creates opportunities for skilled stock pickers
6. Healthcare and communication services represent attractive sectors combining growth potential with defensive characteristics

As we start 2026, this creates a rich opportunity set for a high-breadth, macro investment approach.

By understanding where institutional capital is flowing and adapting portfolios accordingly, investors can position themselves to capture opportunities while managing the risks inherent in today’s complex global markets.