What are the key trends for investors to watch in 2026?

At the start of 2026, the FTSE 100 reached a milestone, passing the 10,000 mark. It was a positive start to the year for markets.

Here our analysts consider the 2026 market outlook and pick three key trends for investors to watch in the year ahead:

1: Defence and Aerospace:
Alastair Power
Investment Research Manager
 
The aerospace and defence sector, which includes names such as BAE Systems and Rolls Royce, enjoyed a strong tailwind of increased spending through 2025, driving a sector return of nearly 77%.
 
Heading into 2026, significant defence spending is ongoing and associated with both meeting NATO targets and addressing nearly 30 years of under-investment. Continued government support for defence exports and new contract wins are expected to see earnings supporting the valuation expansions seen through 2025 and the potential for further share price upside.
 
2: Artificial Intelligence (AI)
Ruth Harris
Investment Research Analyst

Artificial intelligence will continue to be a defining theme in 2026. Technology hyperscalers dominate both US and global equity indices, with growing presence in other markets around the world.
 
The prevalence of AI-linked companies means that any sustained wavering in enthusiasm would have material implications for equity portfolios. This could have a second-order impact on consumer confidence, especially in the US where 62% of adults report participating in equity markets.
 
While 2025 saw increasing discussion of bubbles and AI fatigue, expectations remain high for 2026. Analysts anticipate that AI capital investment will reach US$527bn, increasingly funded through circular financing.
 
3: Emerging Markets
Thomas Hyde
Junior Investment Research Analyst

Emerging markets equities awoke from a slumber to become a top performing asset class in 2025. In 2026, the question is whether this momentum can be sustained. Supportive factors include further US dollar weakening as the Federal Reserve faces pressure to cut interest rates, continued regional capital market reform and the potential for India’s re-emergence after a period of heightened valuations.

However, this is not without risk. The market’s appeal as diversifier away from the developed markets has been weakened, as AI enablers become an increasing weight in the index. A falter in US tech now leaves the region vulnerable to contagion.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance. The information and views were correct at time of publishing but may have changed at point of reading.