The US equities market went on a spectacular bull run following the tariff-prompted plunge in April last year.
From a low point of around 4,980 points sparked by Donald Trump’s Rose Garden speech, the S&P 500 put in a lightning-fast recovery rally to tap new all-time highs above 7,000 in January.
February has seen the US market first stall and then pull back slightly, with markets failing to register the required amount of buying or selling needed to either continue the upward momentum or force a significant correction.
There is a very interesting mixture of factors in play as investors attempt to gauge whether 2026 will turn out to be another very rewarding year, or a troubled one.
First and foremost there is the double-edged sword of artificial intelligence (AI) dominating the agenda. There are big winners already emerging. The likes of chipmakers Nvidia and AMD, and the broad tech mega-caps such as Alphabet and Meta Platforms, surged last year. Another side of the story has become apparent in 2026 though.
Companies which offer products that AI models now directly compete with, such as software as a service (SaaS), have been hammered. A wide range of businesses that involve consulting, data analysis or coding look vulnerable.
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Will McIntosh-Whyte, manager of the Rathbone Multi-Asset Portfolio funds, says: “There’s a huge amount of money flowing into the technology from the handful of companies that dominate the US landscape. This investment is already well underway, yet those companies have announced plans for the spend to continue and in fact increase at pace.
“CEO of Amazon, Andy Jassey, made it clear these companies perceive the bigger risk here for them is to underinvest. This provides a significant tailwind for those benefitting from this spend, ie the AI enablers, and this is well underpinned for the next few years.”
McIntosh-Whyte says the losers from the AI boom are more difficult to know. “The market has moved very quickly to derate software and data names in particular, but also any capex light business where there is a risk their competitive moats cannot protect them from a rapidly developing AI threat,” he adds.
Jack Drew, analyst on Guinness Global Investors’ global equities team, says: “At present, the market narrative is the ‘AI winners’, such as hyperscalers, robotics, and semiconductors, have already emerged, and the ‘AI disrupted’ are going to be swept aside over the coming years. We think there is a lot more nuance to this argument than is currently being reflected in the markets.
“In terms of the losers, the SaaS names have clearly been marked as most at risk, evidenced by a sharp sell-off year to date. While there will likely be substantial disruption to the sector, we believe that within every category, there will be winners and losers.
“For example, firms which have strong proprietary datasets, vertical domain expertise in specified industries, and deeply embedded customer relationships are structurally better positioned than more commoditised peers lacking these advantages.”
Dom Rizzo, portfolio manager of the Global Technology Equity strategy at T. Rowe Price, sees plenty more upside to come.
“AI is driving the biggest productivity surge since electricity, and we are still in the early innings,” he says. “The evidence is clear, information sector productivity is rising, cloud growth has re-accelerated, and major platforms are generating far more revenue per employee. This isn’t a bubble, it is a durable, multi-year adoption cycle.
“Software, however, is in the middle of a structural reset. AI is pressuring traditional IT budgets and lowering the cost of building software, which raises competition.
“A few data rich platforms will emerge stronger, but many companies need leaner cost structures, lower stock-based compensation, and clearer pricing power”.
Don’t fight the Fed?
The monetary policy picture is also in a state of flux. Federal Reserve chair Jerome Powell will be replaced by Trump’s chosen candidate Kevin Warsh in May.
With intense political pressure to go further and faster on rate cuts and falling inflation providing cover to do exactly that, a wave of fresh liquidity could soon be flowing through the financial system.
“Warsh is certainly perceived by markets as a sensible pick for the new Fed chair,” says McIntosh Whyte. “This in itself is a positive for US stocks as it brings a sense of stability to US markets – at least from a Fed independence perspective.
“While many view him as a hawk, Warsh has spoken about the disinflationary impact of AI given its boost to productivity and I expect that view translates towards rate cuts, at least two this year are likely under Warsh’s reign.”
Will McIntosh-Whyte, manager of the Rathbone Multi-Asset Portfolio funds
‘Tax cuts and fiscal support stemming from the One Big Beautiful Bill Act should start to be felt through 2026’
Drew adds: “The market reaction to the incoming Fed chair was generally positive, particularly given a number of previous comments which point to his desire for a pragmatic approach to financial stability.
“He has called for a smaller Fed balance sheet but has also made more recent comments suggesting rate cuts are on the cards.
“What does this mean in practice? Even as Trump has made clear his desire for looser monetary policy, Warsh should continue to provide a strong focus on data-dependence and financial stability, hopefully balancing growth and inflation risks.”
Running hot into the mid-terms
The results of the US mid-term elections in November will determine the trajectory of the second half of Trump’s second stay in the White House. His administration is likely to leave no stone unturned in its attempt to get the US economy and stockmarket going gangbusters through 2026 to help secure Republican votes.
This kind of fiscal boost could be good news for investors. Of course, there is the risk of unintended consequences. Not least a resurgence in inflation.
See also: Rathbones’ Bryn Jones: ‘Don’t play bingo with Trump’ amid tariff volatility
McIntosh-Whyte says: “Tax cuts and fiscal support stemming from the One Big Beautiful Bill Act should start to be felt through 2026. Add to this continued disinflationary trends, including from a lower oil price, and this should provide a boost for US businesses and consumers.
“Given the support from the AI infrastructure build out on top of this, this should support a continued broadening out of the US market, away from the big tech driven gains of the last few years.
“This would lead to more natural positioning in mid-caps and more cyclical parts of the market like banks and industrials. Consumer discretionary names could also benefit although it will be on more of a case-by-case basis.
“It is certainly an important mid-term election,” says Drew. “Trump will want to retain control of the House to advance the remainder of his ‘2.0’ agenda, while Democrats will be highly motivated to regain ground, setting up a fiercely contested cycle.
“A strong economy and stockmarket will buoy voter sentiment, and Trump will likely continue with his liberal fiscal spending. The US administration was only recently touting a $2,000 tariff-funded stimulus cheque, but these are effectively off the cards following the latest supreme court ruling.”
Uncertainty and volatility look set to be the hallmarks of at least the first half of 2026, but as the technological, monetary policy and political pieces of the puzzle move into place, we can be sure it will be fascinating to observe.
