Equity outlook: 5 forces that could lift — or limit — markets in 2026

If 2025 reminded investors that headlines can move markets, 2026 could be a year when policy and technology, working together, steer the narrative. Overall, significant macroeconomic and political events could reshape market dynamics in 2026, while scaling AI adoption and broadening market leadership could lead to more opportunities outside the technology sector.

Here are five key policy events and investing themes that could shape the 2026 equity outlook.

1. A new Fed chair

Jerome Powell’s term as chair of the Federal Reserve ends this May, and a leadership change at the central bank could influence the overall tone of policy communication — and the market’s rate expectations. If the Fed moves toward a more dovish stance (meaning it shows a greater tolerance for inflation modestly above 2% and an openness to measured rate cuts), then the following areas could benefit:

• Interest-rate-sensitive industries like autos and housing, as well as growth-oriented stocks, could see a positive impact.
• Small- and mid-cap companies, which rely more on floating-rate debt, also tend to benefit from lower short-term interest rates.
• Real estate investment trusts (REITs) could also benefit from valuation support if financing costs decline.

2. USMCA’s 6-year review

July brings a formal “checkpoint” for the U.S.–Mexico–Canada Agreement (USMCA), the trade deal that replaced NAFTA in 2020. While the deal isn’t set to expire until 2036, all three countries need to come to the table this summer as part of the formal six-year review and agree to extend the agreement for another 16 years, or risk entering annual renewal cycles.

Overall, we anticipate an extension of the pact, albeit with revisions, to reinforce North American supply chains, particularly in the automotive and related base metals industries. Tighter “rules of origin” for vehicles would likely favor U.S. and Mexico-based assembly and domestic steel/aluminum producers, while import-heavy manufacturers could face cost pressures. Key risks to monitor include a U.S. withdrawal or a failure to agree, which would push the deal into annual renewals and inject persistent uncertainty. Both scenarios are unlikely, but not zero-probability events.

3. Midterm elections

Markets hate uncertainty, and the run-up to November often brings choppier trading. Historically, however, the 12 months after midterms have produced above-average returns, with defensive sectors often leading into the vote and more cyclical/growth areas rebounding after clarity arrives. Early indicators suggest a divided government, a scenario that markets have tended to digest well, as it lowers the odds of sweeping, one-sided policy changes. While the past is not a perfect template for the future, the pattern is worth noting as you set expectations for 2026.

4. AI “stealth” winners

The AI story may be entering a new chapter. Beyond the well-known hyperscalers and chipmakers, 2026 could highlight “stealth tech” implementers, companies outside traditional mega-cap tech that are embedding AI to raise productivity, expand margins and improve time-to-market. This group could include industrial companies using predictive maintenance, retailers applying demand forecasting or financial firms automating compliance.

For investors, look for tangible signs, such as rising revenue per employee, operating margin expansion (including efficiencies related to administration costs, selling expenses and general operating expenses), and capital allocation to scalable digital infrastructure. Execution risk is real, but firms that turn pilots into measurable outcomes could earn higher valuations as the market broadens beyond the obvious AI winners.

5. A renewed appetite for overlooked stocks

Beneath 2025’s strong headline index returns, performance was relatively concentrated in a handful of large growth names tied to AI. Many fundamentally sound companies, especially those with durable business models and solid balance sheets, were “left behind” last year. Some were adversely impacted due to company-specific headlines that we believe are transitory in nature; others were simply overlooked as investors chased thematic exposure to AI and related technologies.

As uncertainty around rates, tariffs and supply chains stabilizes, investor attention may finally shift to these overlooked stocks in 2026, allowing the market’s leadership to widen beyond a narrow group of companies. Investors seeking to capitalize on this potential opportunity should search for select quality names that lagged in 2025 and look for credible paths to earnings normalization and business models aligned with both secular and cyclical tailwinds.

Portfolio actions to consider in 2026

As you look for equity opportunities in 2026, consider the following investment strategies:

• Stay balanced for policy shocks. With a Fed transition, a North American trade review and midterm elections on the calendar, we expect more frequent swings in volatility. Planning for higher-than-usual bumpiness can help you stay invested through headline risk.
• Align with the rate path. If short-term rates drift lower, the following types of stock could benefit: Small and mid-caps, select consumer discretionary, quality technology, infrastructure-linked industrials and income-sensitive equities like REITs. But diversification remains key.
• Lean into AI implementers. Seek companies showing evidence of productivity gains and margin lift from AI in their day-to-day operations, not just press release promises. Track the metrics noted above.
• Mind trade-sensitive exposures. If USMCA revisions tighten rules of origin or keep tariffs elevated, domestic steel and aluminum producers and North American auto supply chains may be relative beneficiaries, while import-reliant business models could see cost headwinds.
• Look past last year’s winners. As leadership broadens, selectively revisit high-quality names that were oversold in 2025. Fundamental progress and more attractive valuations, not momentum, could drive the next leg for markets.

Bottom line

We view 2026 as a year when stock and sector performance diverge based on regulatory, trade and election outcomes. Overall, market results will vary by sector, industry and business model, amid an economic backdrop that continues to support earnings growth and an AI cycle transitioning from build-out to real-world deployment. A diversified approach that’s mindful of policy timelines can help you participate in opportunities while maintaining your personal risk profile.

Put these insights to work

Connect with your Ameriprise financial advisor for personalized guidance on how to apply these insights to your investment strategy.