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A time for thoughtful reflection. This week, our Economics team raises global GDP (gross domestic product) estimates, confident that AI spending won’t overshoot in 2026. While investors worry companies have overindulged in capex, credit data suggests restraint ahead, and analysts note that these concerns are already reflected in reasonably sized multiples. Meanwhile, building a domestic rare earth supply chain remains a complex recipe — one that will take time but should prove worth the wait.

Despite policy uncertainty, we expect the global economy to remain resilient in 2026, led by the U.S. and China, while Europe and Japan lag.

Our baseline view for the U.S. economy is real GDP growth of 2.4% in 2026, an above-consensus forecast supported by policy tailwinds and continued AI investment. However, tariff effects could keep inflation above target, leaving it near 2.8% by year-end. We expect central banks’ easing cycle to largely conclude in 2026 and reiterate our out-of-consensus call for three Fed cuts, all under the new Fed Chair. Head of Global Economics Claudio Irigoyen believes that a more market-friendly U.S. policy stance — alongside de-escalating trade tensions and supportive rulings on IEEPA (International Emergency Economic Powers Act) and USMCA (United States-Mexico-Canada Agreement) — would be positive for the U.S. and the rest of the world. Conversely, any shock that tightens global liquidity, such as unexpectedly high inflation, a buyer strike in a systemic bond market, or an AI-related repricing, could trigger a major correction. A re-escalation of trade wars or geopolitical tensions would also be damaging to growth.

The latest Global Fund Manager Survey (FMS) offers useful context around the recent risk-asset sell-off.

Investor sentiment is at its highest level since February 2025, and falling cash levels are flashing caution. Chief Investment Strategist Michael Harnett notes that the last 20 times cash levels fell to 3.7% or lower — as they have now — equity weakness and Treasury outperformance followed over the next 1–3 months. At the same time, sentiment around artificial intelligence is becoming more nuanced. While most investors see AI already lifting productivity, for the first time in 20 years respondents now worry that companies are over investing — a view Michael attributes to concerns about the magnitude and financing of the AI capex boom. Fortunately, these doubts aren’t translating into broader corporate balance sheet concerns. Looking ahead to 2026, investors still express confidence in emerging markets and AI-driven productivity gains, but near-term positioning suggests a higher risk of further correction without additional rate cuts.

Data cited by the IG (Investment Grade) Strategy team and Vivek Arya suggests that risks of excessive spending may be overstated.

Investment-grade issuance from the five hyperscalers has reached $121 billion year-to-date, more than 4x the five-year average, with four of the five issuing bonds since September. This supply wave has driven notable spread widening for hyperscalers (+48% vs. +3% for the broader IG index), creating more attractive entry points. Looking ahead, operating cash flow is expected to fund most on-balance-sheet capex in 2026, limiting the need for large incremental debt issuance. Head of U.S. Investment Grade Credit Strategy Yuri Seliger estimates $100 billion of hyperscaler supply next year, implying a more normalized pace. On the equity side, Vivek shows that valuations remain compelling: our group of five hyperscalers trades at ~1.3x PEG (price-to-earnings growth) on ~18% growth, reinforcing the case that current levels remain attractive relative to fundamentals.

Following the October U.S.–China agreement, there’s little near-term risk of disruption to U.S. rare earth supplies.

However, building a domestic supply chain remains a strategic imperative. Over the last 20 years, the U.S. and Europe de-emphasized basic materials, allowing China — investing in rare earths since the 1980s — to fill the void. These regions are now rebuilding, particularly as the defense industry increasingly relies on critical minerals. The Trump Administration’s heavy investment is notable, as these projects are often single-asset facilities with no revenues. In the latest episode of Global Research Unlocked, Head of Metals Strategy Michael Widmer and Precious Metals and Mining Analyst Lawson Winder offer more insights into the rare earth buildout and how AI and other shifts are driving demand for copper and aluminum amid constrained supply.