A brief gaze into 2026

As the year draws to a close, uncertainty around the long-term global economic outlook remains elevated. Equity markets have been driven largely by momentum for nearly a year, yet the true anchors underpinning this rally are still far from clear. Given the recent flux in sentiment, we expect the outcome of December to largely dictate where we stand in terms of the equity outlook for 2026, and whether market forces may choose to either reinforce or unwind the rally over the near future.

With that in mind, we outline four themes we already expect to feature prominently in January’s conversations, as investors gauge the durability of this rally extending to next year.

1. The K-shaped economy

A K-shaped economy describes a situation where different segments of the economy diverge. Some prosper while others lag, widening inequality. In the US, higher-income households and sectors like technology have seen rising wealth and asset appreciation. Meanwhile, these paper gains have broadly masked the real struggles faced by lower-income households, who have dealt with weaker wage growth, higher prices, and an uptick in unemployment.

Research indicates that we could expect this divergence to ease in 2026, broadening the market breadth which would favour cyclical sectors – see Figure 1. Leading indicators across labour markets, capital expenditures, and credit show signs of bottoming, while housing is approaching stabilisation. All else equal, value-oriented shares would be better positioned than growth in this instance. AI-focused equities would lose leadership and consolidate, or even collapse.

Figure 1 – A reversal in the K-shaped economy would benefit more cyclical players

2. The US fiscal policy

Any meaningful contribution from US fiscal policy to US GDP growth in 2026 would first rely heavily on changes to tariff policy. The drag from existing tariffs has largely offset the support from tax benefits like accelerated capex depreciation, resulting in a near-neutral fiscal effect for the next year – see Figure 2. Tariffs have an exaggerated effect because they weigh on lower-income households who tend to consume a larger share of their income which amplifies the economic impact. A Supreme Court decision could shift this risk, with the striking down of tariffs providing a noticeable sequential boost. Research does indicate, however, that the probability of this happening is likely being overestimated on current market pricing.

Figure 2 – All else equal, offsetting policy decisions would render fiscal policy as immaterial in stimulating economic activity for 2026

3. The AI Trade in 2026

Sentiment shift in AI shares.
Talk of an AI bubble has become a hot topic among both retail and institutional investors. Over the past month, the AI trade has faced its first real stumble in sentiment (ignoring more exogenous-driven events like Liberation Day), with notable selloffs in Meta and Oracle shares. Oracle, in particular, has lost roughly $315 billion in market value since announcing its $300 billion partnership with OpenAI on September 10, erasing all post-announcement gains. Its share price is currently down 40 percent from recent highs, while its credit default swap (CDS) spread has risen sharply from 36 basis points in June to 124 basis points. Even Nvidia experienced an unprecedented, albeit brief, drop despite its typical earnings beat.

Capital expenditure pressures.
Growing scepticism around AI capex is evident, as investors appear increasingly sensitive to aggressive spending on data centres and other infrastructure. While companies argue heavy investment is needed to secure a first-mover advantage, productivity gains from large language models still remain uncertain. Tangent to the capex schedules and projections disclosed so far by Hyperscalers (please see Figure 3), the peer group is now on track to have a larger depreciation expense in 2030 than their combined earnings today.

Figure 3 – Capex expected to continue exponential growth after 2025

Limits of Large Language Models.
Some experts caution against overstating the capabilities of current AI. Large language models excel at interpolation, summarising existing knowledge, but are weak at generating genuinely new insights. Studies indicate that AI-assisted programmers may even take longer to complete tasks than those without AI, highlighting a potential ceiling in what we could expect to gain in productivity improvements – see Figure 4. Until the existence of Artificial General Intelligence becomes a quantifiable input, pricing of AI valuations will hold this flaw.

Figure 4 – AI productivity gains do exist, but may be more task-specific than the general blanket assumption many believe

How can we assess AI sentiment?
The key indicator for a reversal in the AI rally would be the “Metaverse Moment”. Aptly named after Meta’s past experience, the phenomenon describes an occasion where a major AI company would announce increased AI spending, and its share price goes down. While this could cause an immediate domino effect, and be hard to time, we can gain some forward-looking signal posts via AI adoption rates (Figure 5), and GPU rental rates (Figure 6).

Figure 5 – AI adoption rates are becoming more fickle versus 2024’s meteoric rise

Figure 6 – GPU rental rates in a downtrend

Adoption rates appear to be entering a phase of consolidation, while GPU rental rates appear to be in a noticeable downtrend. While time will tell whether this is a result of Nvidia tapping into economies of scale to stimulate demand further, the downtrend in rental rates can draw parallels to a resource becoming commodified. When we reach a point where AI adoption has run its course, and the cost of renting GPUs tends to perfect competition, then any further capex announcements in the space would likely be interpreted as an inefficient allocation to the general investor.

4. December’s wildcard for 2026: The FOMC Meeting

Investor sentiment toward the broader market may hinge on the Federal Reserve’s upcoming FOMC meeting next week. Markets currently price in an 83 percent probability of a rate cut, but some analysts suggest the odds may be closer to 50/50. Expectations of a cut are underpinning the recent recovery in equities; if rates are left unchanged, markets could face temporary selloffs, adding an additional layer of uncertainty to early 2026.

Investment takeaway

Against this backdrop, the recent volatility in AI shares highlights a more cautionary approach to sentiment-driven sectors would be warranted as we wait for catalysts to crystalise. Broader corporate spending outside of AI ventures appears poised for recovery, suggesting a more stable path for the economy, in lieu of a major economic downturn. In this environment, allocating to value and cyclical stocks might offer a risk-adjusted strategy for maintaining equity exposure, while avoiding undue risk from a potential bubble.

If you are interested in finding out more about how cognisance of the macroeconomic backdrop impacts our investment decision making process, connect with Integrity Asset Management and let us help you navigate your investing journey.

For more information on this synopsis or to discuss solutions provided by Integrity Asset Management, please contact us at:

Tel: (021) 671 2112
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E-mail: nic@integrityam.co.za / herman@integrityam.co.za

Source: Bloomberg, 28 November 2025