How To Play Stocks in 2026

The global stock market delivered a stellar performance in 2025, with some returns exceeding 22%. However, the drivers behind last year’s rally are shifting, setting the stage for a new investment landscape this year.

Three forces shaped markets in 2025. First, the anticipated boost from U.S. fiscal policy and deregulation was delayed by dramatic shifts in global trade, particularly due to changes in U.S. tariff policy. Second, capital expenditure for data centers—critical for powering artificial intelligence (AI)—surged beyond expectations, fueled by supportive government policymakers and resilient consumer demand. Third, investors diversified away from U.S. equities and the dollar, leading to foreign stocks outperforming the S&P 500, regardless of currency movements.

This year, AMG analysts caution; the playbook will not be the same. Policy changes are expected to drive a catch-up in U.S. small- and mid-cap stocks, while foreign equities are likely to maintain strong performance. Although AI technology promises long-term economic benefits, segments of the public market tied to the AI capital expenditure (CapEx) boom could face risks if credit markets balk at funding ever higher CapEx growth. This creates a window of opportunity for small, mid, and foreign stocks to outperform large-cap stocks that are heavily exposed to the AI CapEx cycle.

Bottom Line – Small, mid, and foreign stocks are particularly well-positioned to benefit from a recovery in corporate profits linked to manufacturing and industrial production. The signs are positive: The policy uncertainty that stalled corporate strategies in early 2025 is expected to ease this year. Companies have largely adapted to new tariffs and trade realities, normalizing profit margins. Recent monetary and fiscal policy actions in the U.S. and abroad—including deregulation and the One Big Beautiful Bill Act (OBBBA)—are set to stimulate manufacturing and industrial activity. Fiscal measures in Europe, especially in Germany, are also expected to accelerate economic growth. And central banks worldwide, including the Federal Reserve and the European Central Bank, are expected to continue cutting interest rates as inflation ebbs.