2026 Market Predictions: Regime Shifts & Volatility

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Now that we’ve reviewed our 2025 predictions and how they unfolded, we turn to our outlook for 2026. This analysis focuses less on narratives and more on the structural forces shaping markets—policy constraints, capital flows, volatility dynamics, and second-order effects across assets and sectors. We begin with politics and global power shifts, as these remain the primary drivers influencing macro outcomes in the year ahead.

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I. Politics & Global Power Shifts in 2026

2026 Market and Macro Predictions 01c

1. The United States Moves Further Toward ‘Transactional’ Global Leadership

In 2026, the United States continues its shift away from rules-based global leadership toward a transactional, deal-driven model of power.

This transition was clearly signaled by Trump in 2025 through the expansion of tariffs and the willingness to apply economic pressure broadly, regardless of historical alliances. The underlying message was unambiguous: cooperation with the United States is conditional, and access—whether to trade, technology, or security—comes with explicit expectations.

We expect this framework to persist and deepen in 2026, particularly across:

  • Trade and supply chains
  • Technology access and export controls
  • Defense, security, and strategic cooperation

Economic coercion—via tariffs, sanctions, and export restrictions—will remain a primary tool of leverage rather than a last resort.

Second-order effects:
As a response, more countries will quietly accelerate efforts to:

  • Diversify supply chains away from U.S. dependence
  • Reduce exposure to U.S. policy risk
  • Incrementally diversify currency reserves

This does not imply a sudden collapse of U.S. influence, but rather a gradual erosion of trust in the durability and predictability of U.S. commitments.

2. Domestic Policy in 2026: Executive Action Over Legislation

Domestically, 2026 is likely to be characterized by greater reliance on executive action (or EO’s, executive orders) rather than through a legislative progress.

Following economic cooling and persistent inflation pressures in 2025, political accountability has increasingly shifted toward the current administration. As a result, policy communication will become a market driver. Announcements—often made rapidly and with limited advance signaling—will frequently precede detailed policy implementation.

We expect:

  • More abrupt policy signals
  • Faster market reactions
  • Increased gap risk around political headlines

Market implication:

Short-term volatility spikes tied to political communication are likely to be a recurring feature in 2026, particularly during the first half of the year.

3. Midterm Elections as a Constraint on Presidential Power

The 2026 midterm elections introduce a meaningful constraint on U.S. policy execution.

The base case is increased legislative gridlock, driven by voter dissatisfaction with economic fatigue, foreign spending priorities, and domestic cost-of-living pressures. Even without a dramatic political shift, narrow margins increase the probability that at least one chamber of Congress will change hands.

Should Republicans lose control of the House while narrowly retaining the Senate, the final years of the administration would be shaped less by legislation and more by:

  • Executive orders
  • Regulatory actions
  • Trade and foreign policy maneuvers

Second-order market impact:

Legislative gridlock tends to reduce the probability of sweeping fiscal changes, which the markets will likely interpret as stabilizing. However, it simultaneously increases the likelihood of episodic, headline-driven volatility (think tweets or Truth social posts), as executive actions replace negotiation.

This political backdrop forms the foundation for the macro, currency, and market dynamics discussed in the sections that follow.

II. The U.S. Economy, the Dollar (USD), and the Bond Market in 2026

2026 Market and Macro Predictions 02

1. The U.S. Economy: Deceleration Without a Clean Narrative

The most likely economic outcome for 2026 is growth deceleration rather than a clear recession.

After a year marked by cooling momentum and persistent inflation pressures, the U.S. economy enters 2026 with a smaller margin for error. Labor market conditions are expected to soften further, driven by a combination of cyclical slowdown and accelerating adoption of automation and AI across white-collar and service-oriented roles.

Market narratives will oscillate between:

  • A “soft landing” scenario
  • Fears of a sharper equity drawdown or recession

Our base case sits between these extremes. While a deep contraction is not the most probable outcome, the risk of a meaningful equity correction—on the order of 10–15%—is elevated, particularly during the first half of the year as policy uncertainty, earnings expectations, and inflation concerns intersect.

Second-order implication:

Cyclical and value-oriented sectors are more likely to underperform early in the year and improve later, as expectations reset and visibility increases.

2. The U.S. Dollar: Structural Headwinds Build

In 2026, the U.S. dollar faces gradual but persistent structural pressure.

Two forces are particularly relevant:

  1. Supply-chain diversification and reserve reallocation
    As countries adjust to a more transactional U.S. foreign policy posture, diversification away from U.S.-centric supply chains continues. This is accompanied by incremental, long-term diversification of currency reserves away from the USD.
  2. Fiscal and balance-sheet concerns
    Rising public debt, combined with increasing household leverage and financing costs, adds to longer-term confidence concerns surrounding U.S. fiscal sustainability.

These forces do not imply a sudden collapse of the dollar’s reserve status. Instead, they point to relative weakness over time, punctuated by episodic strength during periods of global risk aversion.

Market implication:


The dollar is likely to trade in broader ranges, with rallies driven more by fear than by confidence. Overall, this combined with more rate cuts in 2026 and we lean towards a weakening USD.

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The following are the overall topics covered:

  1. Bonds

III. Markets, Volatility, Inflation, and Key Assets in 2026

  1. Equity Markets
  2. Volatility in 2026
  3. Inflation
  4. Gold and Silver

IV. AI, Technology, and Sector Positioning in 2026

  1. AI in 2026
  2. Second- and Third-Order AI
  3. AI Leaders
  4. Sector Winners and Losers

In Closing