Welcome to this month’s edition of The Transformative Insights Newsletter by AMG Wealth Management. We hope you’re off to a fantastic new year- those news year’s resolutions are still going strong, right?
This month is about eight trends driving markets as 2026 gets kicked off. These trends are things we at AMG are always tracking but aren’t necessarily reasons to change the long-term investor mindset we hope to engrain in ourselves. As always, if you’d like to understand how any of these trends is impacting you personally, please don’t hesitate to reach out to Tom (813-244-7661) or myself (813-732-7915) for additional clarit
Trends Driving Markets in 2026
1. AI investment continues to drive markets and the economy
Major Hyper-scalers (Google, Meta, Microsoft, Amazon, Oracle etc.) are spending hundreds of billions on the AI infrastructure buildout. This includes massive data centers, GPUs (what Nvidia sells) and hardware designed to optimize AI processes. This spending is a major portion of GDP growth, currently. These major companies are anticipating a rapid adoption of AI technology in the decades to come.
On the flip side, according to the Census Bureau’s Business Trend and Outlook survey, the share of business reporting AI use has gone from 4% in September 2023 to only 10% in September of 2025. Those businesses anticipating use over the next six months rose to 14%. This implies 86% of businesses are not planning to use AI in their daily operations; link for reference: BTOS – Downloads
It’s hard to know what the future holds for AI, but it’s certainly the number one driver of markets and the economy today.
2. Interest rate policy is uncertain, longer-term rates heading down
Short term interest rates (money markets, CDs etc.) have been coming down over the last few years from a high of about 5.5% to roughly 3.5%, currently. Where these rates will go is uncertain as the Federal Reserve wants to keep inflation down while not creating a recession. Add to this, President Trump will be selecting a new Fed President this summer and its a cloudy picture for interest rates in 2026.
Long term interest rates (which are what 30-year mortgage, car loan, student loan interest rates etc. are based on) have been steadily decreasing since late 2023. 30-year mortgage rates are down from 7% in January 2025 to 6.1% in January 2026. That will save a lot of consumers a lot of money on their mortgage payments, which should be helpful for the overall economy. Additionally, it might also be a good time to evaluate whether or not refinancing can lower your monthly payment- especially if you took out a mortgage in 2023 at 7.5% interest or higher.
3. Valuations are historically high
High valuations don’t necessarily mean the market is going to lose 20-30% in the next year. Nobody can predict how the 185 million US investors (not to mention international investors) will react in the short term. However, in the past 150 years of stock market history, when valuations reach the levels they are currently at, it means future returns over the next 10 years will typically be lower than what investors might be used to. For instance, the JPMorgan forward-looking return projections for US Large Cap stocks is currently 6.7% compared to 10-12% historical annual return. Could they be wrong? They probably are from a precision standpoint. That said, directionally this makes sense as lower-than-average returns are what have occurred in every period, historically, when valuations get this high. This doesn’t mean you should get out of the stock market, rather, we should prepare our portfolios for a decade of lower-than-average returns.
4. Government Debt is a Concern
The Unites States has increased its debt levels dramatically in the last 25 years. I could write a book on this, but I’ll make it short for you: It’s unfavorable to one’s political career to increase taxes or reduce government spending- it turns out, voters don’t like this. Therefore, politicians don’t typically pull these two levers. The result: our nation’s debt/GDP ratio is 119% compared to the 50-year average level of 47%. In reality, two events accounted for the vast majority of this increase: 1) the 2008 financial crisis and 2) Covid. Hopefully there won’t be a third (but hope is not a plan!).
President Trump’s plan is to grow the economy enough where tax receipts become larger (higher incomes, more investment = more tax receipts/revenue for the government). He also wants the Federal Reserve to lower interest rates which would lower the government’s borrowing costs on its mountain of debt. This may work, it may not, only time will tell.
There are some honorable mentions for events driving the markets today which include:
5. US Dollar depreciation- This happens when interest rates decline. Foreign investors are less likely to hold US debt (low rates = less money for them) so they sell their US debt which creates downward price pressure on the USD from falling demand. Also adding to this trend, Geopolitical risks rose last year which created a flight to gold and away from the dollar.
This highlights the importance of international diversification in portfolios- when the dollar weakens, foreign currencies become more valuable when converted back to USD, boosting the returns of international investments.
6. Tariffs – Inflation hasn’t been too hot this past year. Core CPI has decelerated to an annual rate of 2.6%. This means prices for consumers haven’t risen dramatically over the last 12 months. It seems like companies, for now, have absorbed the impact of tariffs and have possibly redesigned supply chains to lessen their impact. So far, tariffs haven’t had a massive impact on company profitability (the major driver of stock performance).
7. Unemployment Creeping Up – Unemployment is now 4.6% compared to around 4% last year. The reason for this is tough to pinpoint. Some speculate AI is making some jobs redundant. It might just be normal economic cycle fluctuations. It’s definitely something we’ll be keeping an eye on as higher unemployment is a massive risk to economic stability- when people lose jobs they don’t spend money. When consumers don’t spend money, the economy weakens.
8. Private Credit Risks – Unlike traditional bank loans, private credit allows institutional lenders to provide customized financing solutions directly to companies, offering flexibility that banks often cannot match due to regulations put in place after the 2008 financial crisis. There started to be some cracks forming in private credit late in 2025 with the bankrupcy of First Brands exposing hidden losses at private credit lenders. This has sparked nationwide debate about the quality of underwriting for these private loans- especially at a time when private equity/ private credit firms are trying to access American’s 401k plans (which could create widespread chaos to the average American’s wealth if this industry implodes).
With limited transparency, limited liquidity and concentration of maturities ($50 billion in loans coming due in 2028 alone), this could present a big problem for the lenders if these companies (many of which are credit risks) are unable to pay back the loans.
Overall, the economy appears strong and corporate profit growth is expected to be healthy this year. That said, there are always risks to investing, and we believe you should be aware of them.
Adam Gruber CFP®
The secret to being happy in 2026? It’s far, far simpler than you think … | New year | The Guardian – Ben O’Brien of The Guardian
Delayed gratification has many benefits- do I eat the slice of cake now or make my doctor proud in 6 months? The author of this article reshapes the idea of delaying gratification as enjoying something better for you (fruit) instead of denying some great (like cake). Instead of denying yourself dessert to lower your A1C levels, maybe you learn to love fruit (which can be just as sweet- but the fiber in fruit helps you avoid blood sugar spikes making it infinitely healthier). For those addicted to their phones, instead of keeping the device in the bedroom and trying to resist the urge to go get it, fill your family/friends time with enjoyable activities like biking, going to park, canoeing, golfing, playing board games/card games etc. so that you don’t even think about your phone!
Avoiding bad habits doesn’t have to be miserable if you fill the void with something enjoyable!