US equities will keep leading in 2026 — and commodities are entering a new demand cycle

A clearer macro backdrop, falling inflation, and steady earnings growth could set up a stronger year for global markets in 2026, according to UBS’s latest Year Ahead outlook. The bank expects global equities to rise by around 15% through next year, led by resilient corporate profitability and long-term investment themes such as AI-driven power demand, healthcare innovation, and the energy transition.

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The US is still the engine of global equity returns, says UBS, which anchors its 2026 outlook in the US, where strong earnings momentum — including a prediction the S&P 500’s earnings per share will rise 10% y-o-y to USD 305 — supports the bank’s call that the index could reach 7.7k by year-end. The Magnificent 7 remain central to that view, with UBS estimating that the group will contribute nearly half of earnings growth next year as AI adoption, higher corporate investment, and supportive policy continue to drive profitability.

UBS also flags several sectors that it thinks are entering stronger phases. Healthcare stands out thanks to policy stability and the continued boom in obesity meds. Utilities are poised to benefit from rising power demand tied to AI infrastructure, while their valuations remain at an 18% reduction from historical averages. Banks are expected to deliver more stable returns, with sector-wide return on equity rising toward 11.5% and balance sheets still looking solid.

Europe also shows encouraging signs. UBS upgraded Europe to “Attractive,” pointing to a sharper earnings rebound — predicted to be up 7% y-o-y in 2026 and 18% y-o-y in 2027 — and cheaper valuations, with equities still trading at a 22% reduction from historical norms. Easier financial conditions after 200 bps of European Central Bank cuts and Germany’s investment plans also strengthen the case.

Investors should also look towards emerging markets, with UBS highlighting emerging markets as offering a way to get diverse exposure to AI and semiconductors outside of the US, as tech now makes up over 40% of the MSCI EM index. Fed easing and a softer USD should help deliver “high single-digit” returns by end-2026, according to the lender.

China’s improvements in tech innovation, stronger domestic liquidity, and resilient earnings have set the stage for further upside. Valuations are above historical averages, but remain well below prior cycle peaks, leaving room for expansion as fundamentals improve. Policy continues to favor advanced manufacturing and technology under the Five-Year Plan, while rising domestic investor participation is adding support. UBS sees US-China tensions as a source of volatility — but also as a chance to add exposure on dips.

Commodities are another bright spot in the 2026 outlook. UBS expects attractive returns across major commodity groups due to tightening supply-demand balances and ongoing geopolitical risk. In precious metals, the bank sees continued upside supported by persistent official-sector buying, fiscal uncertainty, and global risk hedging. In energy, 2025 underperformance sets up a rebound once non-OPEC+ supply growth slows and demand recovers through mid-2026. Industrial metals — led by copper — should benefit from structural shortages tied to the energy transition and recent supply disruptions. Agriculture, which slumped through 2025, becomes more appealing next year as tight cocoa and coffee markets, weather risks, and low livestock inventories support prices.

The bank recommends maintaining 30-70% of portfolios in equities depending on risk appetite, with the US representing at least half of any global allocation. Up to 30% of equity exposure can be dedicated to long-term themes like AI infrastructure, health-span innovation, and decarbonization. Commodities may play a tactical role of up to 5% in diversified portfolios, while factor-based and systematic strategies can complement regional positioning.

MARKETS THIS MORNING-

Asian markets are mostly in the green in early trading this morning, with the Kospi leading gains, up 1.6%, and the Nikkei and Hang Seng trailing behind.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.5% yesterday on turnover of SAR 3.6 bn. The index is down 12.4% YTD.

In the green: Alistithmar Reit (+3.6%), SRMG (+3.2%) and Rasan (+3.1%).

In the red: SIDC (-8.3%), Aljazira Reit (-5.8%) and Cherry (-5.7%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.4% yesterdayon turnover of SAR 21.7 mn. The index is down 23.8% YTD.

In the green: INMAR (+18.2%), ITMAM (+9.7%) and NBM (+9.6%).

In the red: HKC (-9.8%), Alfakhera (-6.0%) and Almodawat (-5.8%).