The big risks investors should be paying attention to in 2026

After a strong year for global markets in 2025, most major investment firms remain cautiously optimistic about the outlook for the year ahead. Growth is expected to continue, policy is easing rather than tightening, and the global economy has so far absorbed higher interest rates better than many expected.

But if there is one consistent message running through the 2026 outlooks, it is this: markets are becoming less forgiving. 

The dominant tone across major investment outlooks is not one of outright pessimism, but of fragility. As J.P. Morgan puts it, while the surface picture still looks constructive, “there is plenty of potential for a considerably bumpier ride.” 

Valuations are elevated, capital spending is accelerating, debt levels are high, and returns are increasingly reliant on a narrow set of themes continuing to deliver.

That does not make 2026 a year to avoid risk, but it does raise the cost of getting it wrong.

With the help of AI drawing on research from Morgan Stanley, J.P. Morgan, UBS, BlackRock, Goldman Sachs, Brookfield, Macquarie Asset Management and Morningstar, several common risk themes emerge, alongside a few important points of divergence.

Valuations are doing more of the work

Markets are no longer cheap, and that changes the margin for error. Morgan Stanley notes that valuation has become a central issue for Australian equities:

“Valuation remains the most contentious issue for investors at these levels. Multiples paid for earnings are stretched at 18.7x and this compares to the 16.3x 10 year average and 14.9x long run average.”

With less scope for multiple expansion, returns become more dependent on earnings delivery. That tends to widen the gap between companies that execute well and those that don’t, particularly in a market like the ASX, where income reliability and balance-sheet strength are already heavily priced in. 

Macquarie Asset Management reaches a similar conclusion at the global level, noting that while growth may be sufficient to support returns, valuations leave less room for disappointment in listed equities. In that environment, volatility tends to be more episodic, rather than driven by a single shock.

AI remains the dominant theme and a growing execution risk

Artificial intelligence underpins much of the optimism heading into 2026 - it is also the most important shared source of uncertainty.

BlackRock frames the AI build-out as a structural shift in how growth is delivered:

“AI, with a buildout of a potentially unprecedented speed and scale is pushing limits on multiple fronts – physical, financial and socio-political.”

Macquarie agrees that AI investment is already contributing meaningfully to growth, but places greater emphasis on the risk of expectations running ahead of returns. While capital expenditure has surged, Macquarie notes that companies will ultimately need to see a return on that investment - otherwise spending could fade and weigh on growth.

The firm draws an explicit parallel with past technology cycles, warning that history suggests there is a risk of a period of disappointment before productivity gains become visible.

In its assessment, the odds of a mild AI “hype deflation” in 2026 are roughly balanced against the possibility that productivity gains begin to emerge.

For Australian investors, the risk is less about direct exposure to AI leaders and more about second-order effects. Energy, infrastructure, data centres, and capital-intensive industries are increasingly priced on the assumption that AI investment will continue at scale. Even a temporary pause would challenge those expectations.

Trade, tariffs and deglobalisation are slow-burn risks

While markets are no longer reacting violently to every trade headline, policy risk has not disappeared. It has just become slower-moving and more complex.

Macquarie argues that the increase in US tariffs represents a historically large shock to global trade and warns that the economic impact tends to arrive with a lag.

Based on prior experience, it estimates a delay of nine to 18 months between tariff increases and their full effect on growth. This implies that the biggest impact from recent trade measures could emerge in the first half of 2026.

Beyond the near-term cycle, Macquarie takes a firmer view on the long-term direction of trade:

“Longer term, in our view, the global economy has entered a period of deglobalisation from a trade and cross-border investment perspective.”

Trade and foreign direct investment have already slowed relative to global GDP, reducing one of the key tailwinds that supported growth over previous decades.

While this creates opportunities in domestic manufacturing, infrastructure and local supply chains, it also lowers the margin for error in global growth assumptions.

For the ASX, these forces are most visible in resources, energy and industrials, where earnings expectations remain sensitive to global demand, Chinese growth and trade policy.

Debt levels make markets more sensitive to shocks

Another area of broad agreement is the scale of global debt and what it means for market stability.

BlackRock warns that higher leverage increases fragility:

“Along with highly indebted governments, this creates a more levered financial system vulnerable to shocks”

Macquarie notes that fiscal positions across the G7 are among the weakest observed outside recessions, with government debt averaging more than 120% of GDP.

Ageing populations, rising defence spending and higher interest costs are likely to add further pressure over time.

The implication is not necessarily an imminent fiscal crisis, but a reduced capacity for governments to respond forcefully to future shocks. Macquarie also highlights the risk that bond markets could periodically “take fright”, creating volatility even if the underlying economic impact remains contained.

Concentration risk is becoming harder to ignore

Several firms warn that diversification may not be delivering the protection investors assume. BlackRock describes a “diversification mirage”:

“Allocations made under the guise of diversification may now in fact be big active bets.”

Macquarie’s research reinforces this point, showing how returns across asset classes have increasingly been driven by a narrow set of growth drivers, particularly AI-related investment and resilient consumer spending.

The ASX has its own version of this issue. Heavy exposure to banks and miners leaves portfolios vulnerable to sector-specific shocks, even when headline index performance appears stable.

Areas of divergence

Where the outlooks differ is in how these risks interact. UBS and Brookfield are more confident that structural themes – particularly AI, power and infrastructure – can absorb shocks and deliver long-term returns, even if volatility rises. Brookfield emphasises the resilience of real assets with inflation-linked cash flows.

By contrast, Morningstar adopts a more behavioural lens, warning that investors are prone to overreact to headlines. Its core risk is not any single macro shock, but poor decision-making during periods of uncertainty.

Periods like this, where markets are expensive but not obviously unstable, can encourage short-term decision-making. Incremental changes in earnings, policy and sentiment matter more than dramatic turning points, making patience and discipline harder but more important.

Macquarie strikes a middle ground, arguing that growth should hold up, but that deglobalisation, debt and political polarisation represent longer-term constraints that markets may periodically underestimate.

Its analysis of past cycles suggests that many of the risks facing markets in 2026 are not black-and-white, but instead unfold gradually, testing conviction rather than forcing immediate repricing.

What investors should take from this

The message from the 2026 outlooks is not to abandon risk, but to be more selective and realistic. 

As BlackRock concludes, this is an environment in which “traditional approaches to portfolio construction need a rethink,” with investors requiring clear contingency plans if crowded trades unwind. 

Elevated valuations, concentrated leadership and heavy reliance on AI mean that markets are less forgiving of disappointment. Policy, fiscal and rate uncertainty add further complexity.

As J.P. Morgan says, diversification “isn’t dead, just different”. In 2026, managing risk may be less about predicting the next downturn and more about understanding where expectations are most fragile and how quickly sentiment could turn if they are not met.