These are the curveballs that could surprise investors in 2026

MW These are the curveballs that could surprise investors in 2026

By Jules Rimmer

No one foresaw the pandemic, the inflation spike of 2022 or 'liberation day.' What might investors not be prepared for next year?

"As we look forward to 2026, it's safe to say that the most surprising thing would actually be a lack of surprises," says Deutsche Bank.

Despite the volatility, equity markets have successfully negotiated various crises in 2025 and the S&P 500 SPX is on target for an annual return in the upper teens. That's not bad at all. But what unexpected developments might surprise investors in 2026?

In the last five years alone, a pandemic, an inflation spike and a trade war all appeared out of left field to confound expectations. With the end of the year approaching, Jim Reid, Deutsche Bank's head of global economics and thematic research, published a report, "Curveballs for 2026."

The note, co-authored by analysts Henry Allen and Rajsekhar Bhattacharyya, examined both positive and negative possibilities, and found plenty of potential game-changers in both categories. "The most surprising thing," Reid wrote, "would actually be a lack of surprises."

Between 1996 and 2000, quarterly growth in the U.S. economy never failed to exceed 4% and Reed and team said the prospect of AI capex and productivity gains could facilitate the return of similarly impressive growth rates. It's not out of the question for the AI bonanza to drive such expansion.

U.S. Real GDP Growth

Deutsche Bank's 2026 target for the S&P 500 was among the most ambitious on Wall Street, but it only implied a return of roughly 17%. Deutsche research found that in the last century, returns of 15-20% were most common. In 40 of those years, that's been bettered. They asserted that 8,000 "is not statistically outlandish." Another increase for the S&P 500 next year would mark the fourth successive advance for the first time since the global financial crisis of 2008-09.

As the Fed is expected to cut rates, Reid also highlighted that historically, when the Fed eases into a soft landing for the economy, the S&P 500's median increase is 50%.

Other possibilities Reid suggested were Fed Chair Jerome Powell staying on the board even after his term ends in May (for which there are precedents); chances of further tariff relief; the all-important U.S. midterm elections in November; and the prospect of a thaw in Sino-American trade tensions. The team also pointed to political stability over the coming year.

More pertinently, the research note explored what could go wrong in 2026 that has not been factored in by investors. Chief among those worries would be any inkling that the Fed gets inflation wrong and is forced to curtail its easing and even reverse policy with a hike "The narrative switch would likely upend markets ... and a new, dovish Fed chair adds confusion," Reid said. The Fed has been relatively harmonious throughout the terms of Alan Greenspan, Ben Bernanke, Janet Yellen and Powell. If a new chair ushers in an era of turbulence, Deutsche thinks this could be extremely disruptive.

Following on from this, inflation, to Deutsche's economists, seems set to remain "above target as far as the eye can see" and tariffs and the fastest Fed easing outside a recession since the 1980s complicate the picture further.

Median S&P 500 Performance after Fed cuts rates since 1957

Other potential trouble spots pinpointed in the report are the danger of electricity prices surging unexpectedly owing to data-center demand and, of course, the understandable reservations many market observers share about bubble valuations in the U.S. tech sector. While earnings forecasts have been raised relentlessly in recent years for the likes of Nvidia (NVDA), what if earnings forecasts flatten considerably? "It would question the whole AI trade and global market optimism."

Reid identified other risks that may cloud investors' horizons, such as job-market losses related to AI, the accumulation of margin debt and a possible erosion of confidence in credit markets caused by the huge issuance required to fund AI capex.

-Jules Rimmer

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December 09, 2025 07:40 ET (12:40 GMT)

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