We do not know exactly what the markets will look like in 2026. What we do know is that things will change. And many of those things can be positive for growth. The One Big Beautiful Bill Act (OBBBA) restored 100% expensing for most business investments. The quadrupling of the SALT deduction will provide massive tax relief that the Tax Cuts and Jobs Act of 2017 took away. The no-tax on tips and no-tax on overtime will provide a massive boost to the part of the population that has been squeezed by the inflationary blast from our Covid stimulus era.
In addition, changes in regulatory policy, reductions in federal employment, and revisions to climate-related subsidy programs are reshaping government spending patterns, with potential implications for productivity and economic growth.
The forward indicator of whether an economy is expanding or contracting is explored in the Global economic activity momentum chart. A number above 50 is expansionary, and the US and much of the world are currently expanding. Some of the EU members, namely Germany, Italy, and France, are struggling with economic growth.
One of the themes that will carry through from the DOGE experiment from 2025 is the discovery that as much as 10% of our federal budget may be fraud of one type or another.*
Getting our entitlement and grant systems buttoned up and finely tuned will go a long way toward improving the overall productivity of our spending as a whole.
Lower borrowing costs will help smaller and mid-sized firms, which are far more dependent on credit markets than large-cap companies like those of the mega large-cap MAG 7. This action should help broaden the universe of companies that can grow earnings and add to the GDP growth.
Private sector debt service is nearly back to pre-Covid levels, but still well below levels during the Great Financial Crisis in 2007-08. The consumer has the capability to consume more as their personal confidence returns following a 4-year-long battle with inflation. Energy prices have been down significantly over the last year, with oil down from $80 a barrel at the beginning of 2025 to about $60 per barrel as I am writing this piece. This is likely to continue to bring down inflation.
An Economic Perspective on AI Implementation in 2026
For this section of the piece, I asked X’s Grok to analyze AI’s contributions to the economy in 2026. After all, it is supposed to make our lives easier. Why work hard?
Its answer:
“As we enter 2026, artificial intelligence (AI) is no longer just a buzzword but a tangible force reshaping global economies. With the hype cycle maturing, implementation is shifting from experimental pilots to scaled deployments, driving productivity gains, workforce transformations, and new growth avenues. However, this comes amid paradoxes: soaring expectations clash with uneven value realization, environmental costs, and labor disruptions. Drawing from recent forecasts, AI is projected to add significant tailwinds to GDP, particularly in tech-heavy sectors, while challenging traditional economic models.
Productivity Boosts and GDP Contributions. AI's economic promise hinges on enhanced productivity. In 2026, AI-related spending is expected to contribute meaningfully to GDP, with estimates suggesting it could provide an uplift of around 0.5-1.0% Souce JP Morgan in the U.S. alone through investments in data centers, chips, and software.
Globally, AI tailwinds are boosting otherwise sluggish growth, especially in emerging markets where tech exports and AI adoption accelerate expansion.
For instance, inference—the process of running AI models—will dominate computing power, accounting for two-thirds of AI workloads, fueling a boom in specialized infrastructure valued at hundreds of billions.
This shift from training to deployment underscores AI's maturation, enabling efficiency gains in operations like supply chain optimization and personalized marketing. Yet, productivity paradoxes persist. Initial AI integrations often lead to short-term dips as workflows adjust and human oversight is required for "agentic" AI systems—autonomous tools handling complex tasks.”
Back to a human’s perspective. (I am taking over the piece from AI here)
Grok is saying that it will make some tasks easier and others more complicated, as understanding new systems will take human retraining.
As for job destruction or elimination, this is where The Terminator story fits in. Will Skynet ultimately destroy human dignity and importance? Most people get their self-worth through their productive endeavors. The real risk of AI is that it will destroy the human spirit. In Wall-E, humans sit around drinking sodas and snacking while playing video games, getting fat as the robots do all the work.
I don’t believe that is how it will end up. I am on the optimist side of the AI debate about what it will do for jobs in the future. We can’t fathom what industries and jobs may exist in the future as this new revolutionary technology changes the world. But we had better get ready for it because it’s happening right now.
AI implementation in 2026 will accelerate automation, with profound effects on the labor market. Agentic AI is predicted to displace roles in routine tasks, such as customer support, where companies like Salesforce have already cut jobs to slash costs.
As a result, it could lead to higher unemployment in mid-tier specialized jobs, shifting workforces toward "hourglass" structures: demand for entry-level AI-savvy roles and senior strategists, while agents handle the middle.
Governments' push for STEM education may exacerbate this, overlooking human skills like creativity that AI can't replicate, potentially widening inequality.
On the flip side, AI could create a net 78 million jobs by 2030, with rising demand for skills in analytical thinking, resilience, and AI oversight.**
Industries like healthcare and law will see AI augmenting professionals—e.g., diagnosing rare diseases or multi-document reasoning—boosting output without wholesale replacement.
Economic dashboards will emerge to measure these shifts in real-time, tracking task-level displacements and new opportunities.
So much promise, but not without its challenges.
Risks and Paradoxes
Stanford experts foresee a move from hype to measurement, revealing moderate impacts amid bubbles and pushes for sovereignty.
The World Economic Forum notes paradoxes: AI floods information with deepfakes, potentially valuing human authenticity more, while over-reliance harms youth skills and entry-level jobs.**
One last point - We haven’t even written a code of ethics for AI use. Structural things need to accelerate if we are to get ahead of what could go wrong.
In Conclusion
We are cautiously optimistic about market outcomes in 2026. Still, I do recognize that significant change will bring increased volatility and the potential for a bubble in part of the AI investment space. We are in the early innings of the AI game, so I am not worried about that for now. These companies are making a profit, and so far, the leverage in that space hasn’t even begun. That makes this situation far different from the Dot Com era.
* King, Ryan, “Treasury Secretary Scott Bessent reveals up to 10% of US budget stolen each year,” MSN, 13 June 2025
** Markovitz, Gayle and Elliott, David, “AI paradoxes: 5 contradictions to watch in 2026 and why AI’s future isn’t straightforward, World Economic Forum, 30, December 2025
Securities offered through Cetera Wealth Services, LLC (doing insurance business in CA as CFGAN Insurance Agency LLC: CA Insurance License #0644976), member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.
The views stated in this letter are not necessarily the opinion of Cetera Wealth Services, LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.