5 financial myths to beware of in 2026

Investment narratives abound at this time of year, and many of them may develop into generally accepted financial myths that often don’t make much sense. Declaring myths as such is a risky business. A week is a long time to forecast in the investment markets, let alone a year. However, investment shocks and surprises can move markets, and it is important to be contrarian and think outside the box. Recognising alternative investment outcomes against the market consensus is what makes successful investors. For instance, at this time last year the market was bullishly forecasting the S&P 500 index to rise 10 per cent. It turned out to nearly double that, rising almost 18 per cent despite the threat of tariff disruption to the global economy. Yet it was a comparative laggard, as the MSCI World Index jumped nearly 21 per cent, with notable outperformers including the Nasdaq, Japan’s Nikkei 225, Hong Kong’s Hang Seng Index and South Korea’s semiconductor-rich Kospi, which soared a massive 75 per cent. India, a market favourite at the beginning of 2025, shocked by rising less than 10 per cent, showing the importance of not always following the consensus. Anyone with a US dollar investment base who invested in non-US assets picked up a healthy premium as the greenback fell 13 per cent against the euro after non-US investors lost confidence in American economic policy. Who would have thought it? As we enter 2026, here are five market myths. Myth 1: markets will continue to rise and we must remain fundamentally bullish. I was right a year ago to forecast that the stock market bubble would not burst in 2025, even though it already looked fragile. Markets often reverse on or near quarterly dates, but I expect the bullishness to last through to at least the end of the first quarter. It seems unlikely that we will see a repeat of the surprisingly robust monthly economic data we enjoyed last year, amid US President Donald Trump’s on-off tariffs and the US government shutdown. The surge of investment into artificial intelligence has also delayed the inevitable, making markets critically sensitive to a major external shock. Trump has sought to disrupt geopolitics and geoeconomics to favour his interests, but he has merely destabilised global markets without implementing any effective policies to counter the resulting consequences. I forecast that the market will fall like a stack of bricks in 2026. It might only take a single bad news story to trigger a reversal. Myth 2: US interest rates will fall. The US market has obsessed all year about interest rates falling, encouraged by Trump’s pressure on the Federal Reserve, but solid US growth and employment figures have weighed on the timing of the cuts. A half-point cut in 2026 appears feasible at this stage, but the significant cuts that Trump wants are unlikely to happen before he can realistically gain a majority on the Fed’s board. By that time, the cutting cycle could be over – as it already is for many US trading partners – and unjustified cuts could spur a dollar crisis. Myth 3: Things can’t get any worse under Trump. They very much can. Trump’s popularity and “America first” have passed their peak, with policy capriciousness and hypocrisy becoming noticed by voters. Tariffs, inflation, limited interest rate cuts, the tech broligarchy, capricious domestic and foreign policies and the Epstein cover-up are undermining Trump’s campaigning skills. More seriously for the Republicans, infighting within their ranks is breaking out. Democrats should be clear winners in the midterm elections despite lacking an effective leader, unless the Republicans can gerrymander more congressional districts. This is not a cause for celebration among those disadvantaged by recent policies. A wounded, lame-duck Trump could become dangerous to both friend and foe if the institutions of American democracy fail to bind him. Myth 4: The United States will hold its own against China. My forecast of a pivot away from the US and towards China last year held up, as the yuan rose more than 4 per cent against the US dollar. Technological progress in China is moving faster than in the US, in areas such as automation and robotics, and digitisation is more ingrained in Chinese society. However, the nation still has to work through property sector indebtedness and consumer reluctance before the economy can really start moving. Myth 5: AI will have a bumper year. On the contrary, artificial intelligence will not reward the many billions in investment this year, save for the most iterative of tasks. Generative AI might produce elegantly written output, but it still hallucinates when asked for facts, interpretations or ideas. However, AI will show its mettle in areas of practical use as devices become genuinely more intelligent for narrow tasks. China already has a technological lead in making hardware. The expensive US dash for leading-edge AI may pay off in the next decade, but it is autonomous devices that will shape daily life in the near term. What is not a myth is the growing spectre of military conflict. Once shunned in polite conversation, superpower strength is now openly displayed. Recent US military actions are an unfortunate example to others around the world. Russia is a physical threat to smaller European sovereign states and bigger ones with its long-range drone incursions and its attacks in cyberspace. The familiar faces of pestilence, war, famine and death could loom large in 2026. Happy New Year!

5 financial myths to beware of in 2026

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Investors must be careful in following conventional wisdom this year as several seemingly sure bets might be anything but