As 2026 begins, investors face a resilient yet pressured US economy, persistent inflation, and powerful fiscal and AI-driven tailwinds. We explore what this means for investors across asset classes and around the world.
The Year in 14 Sparks
The story of 2026 is not a single trend, but a set of intertwined forces. Some push against growth: rising consumer delinquencies, uneven savings and a widening K-shaped economy. Others propel us forward: improving credit metrics, a weaker dollar and the ongoing AI buildout.
Apollo Chief Economist Torsten Slok breaks down these dynamics and more using the same chart-driven, data-first approach that defines The Daily Spark—but expanded to offer a comprehensive view of the 2026 outlook.
Key Takeaways
- The US Outlook for 2026 Is Consistent with a Stagflationary Environment
Boosted by accelerating tailwinds, we are bullish on the medium-term outlook for the US economy. However, in the short term, slowing growth — driven by trade frictions, immigration restrictions and risks from a deepening K-shaped economy — combined with inflation stuck near 3% puts the US squarely in a stagflation environment. We can therefore expect higher-for-longer interest rates to remain, with direct implications for all rate-sensitive investment strategies. - Recession Risk Remains Elevated, and Earnings Vulnerability Is Rising
Current pricing implies a 30% recession probability for the US in 2026. In a slowdown, non-AI-related equities (the S&P 493) face meaningful earnings risk. The combination of weakening growth and persistent inflation increases the likelihood of further market turbulence, requiring investors to be cautious as they position portfolios in 2026. - AI Remains a Central Driver of the Macro Outlook
The AI buildout has become the foundational pillar of US growth, driving capex investments, equity valuations and consumer wealth. While we expect the AI cycle to continue in 2026, any rollover would have material negative consequences for data center investment, the Magnificent 7 and broader consumer sentiment. We are therefore monitoring all dimensions of the AI story extremely closely. - A Rare and Significant Divergence Between the US and Europe Is Emerging
The consensus expects US inflation to remain elevated because of ongoing tariffs. Europe faces none of these trade frictions and therefore will likely see inflation and interest rates fall in 2026. This divergence is unusual and increasingly relevant for global asset allocations.
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Investment Insight
December 19, 2025
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Investment Insight
December 19, 2025
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