Ten investor surprises for 2026

Before I share my ten surprises for 2026, a reminder: this tradition was started in 1986 by Byron Wien, the legendary Morgan Stanley and Blackstone market strategist who was a mentor of mine throughout much of my career. Over the course of his nearly 60 years on Wall Street, Byron came to believe that the best way to make outsized returns was to deviate from the consensus—and to be right a decent percentage of the time. If nothing else, he believed that it was a healthy exercise to challenge conventional wisdom.

I have compiled my own list for the last 24 years, dating back to when Byron and I worked closely together, and I am proud to help keep the tradition alive in his honor.

The primary goal of the ten surprises is to capture developments that most would deem no more than 33% likely to occur, but which I believe are at least 50% likely. Keeping score matters. Over the past 24 years, just over half of my surprises have materialized. The positive hit rate was 7/10 in 2023 but just 3/10 in 2024. 2025 was a better year—I have reviewed my 2025 surprises at length, and with a bit of partial credit, 6.5/10 seems to me like a fair assessment.

With that, here are my ten potential surprises for 2026:

1. The greenback is back in the green. After predicting a weaker U.S. dollar in 2025, I expect the dollar to reassert its longer-term uptrend in 2026. With the trade-weighted greenback off nearly 10% from year-ago levels, investors will be hard-pressed to diversify further into the slower growing European, Japanese, UK and Swiss economies, particularly when only the U.S. offers positive real yields. Despite the long-time weak dollar leanings of its leader, the Trump Administration recognizes that a stronger dollar would help ease affordability concerns ahead of the midterms. The dollar recoups more than half of its 2025 decline.
2. The Gold Rush ends. Goldbugs enjoyed an epic ~110% rally over the past two years, fueled by central bank buying (particularly after Russia faced international sanctions following its invasion of Ukraine), a weaker U.S. dollar, lingering inflation fears, and a broad “debasement trade” fueled by fears that paper money will lose value over time as confidence in central banks declines. I would not rescind most of the arguments presented in my “100 Reasons to Buy Gold” report from 1998—gold still has some powerful insurance-like qualities. However, with due respect to Mae West, too much of a good thing isn’t always wonderful. When non-experts as varied as podcast host Tucker Carlson begin launching precious metal companies I am more intrigued by the other side of the trade. Although the positive momentum in gold may well continue a while longer on a seemingly inexorable march toward $5000 per ounce, I expect gold prices to ultimately decline by at least 10% in 2026. Silver, platinum and palladium will suffer steeper declines. Copper will remain resilient though, aided by strong electrification demand. The Dow Jones Precious Metals Index ends the year down 15%.
3. A DeepSeek moment with more legs. Smaller, cheaper, open-source AI models gain favor over the energy inefficient, closed models from the U.S. that have dominated to date. China’s embrace of those open-source models, its highly potent industrial espionage efforts, and a dearth of power bottlenecks relative to the U.S. allow it to essentially run neck and neck with the U.S. in the AI battle outside of the American advantage in semiconductor power and efficiency. Open AI’s business model is called into question as its revenue growth is deemed insufficient to meet its massive spending needs (including power generation). The “build it and they will come” mentality in the U.S. toward data centers loses momentum, also in part due to power constraints. The reality sets in that the massive growth in data center capex was driven more by a fear of missing out than by a reasonable assessment of return on investment. This all contributes to a major sell-off in AI-heavy stocks that results in a 20%-plus intra-year decline in the Nasdaq. While many recent market darlings fall by over 50%, there is no sustained bear market in 2026 akin to the one that began in 2000, however, as investors appreciate that the leaders of this era generate substantial free cash flow and, on balance, are not overly reliant on outside funding.
4. Dividend stocks regain relevance. One of the historical anomalies of the post-2022 Chat GPT era is that companies with large capital expenditures have significantly outperformed those which return capital to shareholders. With the S&P 500 dividend yield sitting near a 50-year low of under 1.2%, non-dividend paying stocks have outperformed dividend payers by about 40 percentage points over the past two years. This comes during a period when dividend paying companies have produced low double-digit annual earnings growth, feature strong balance sheets, and have the benefit of supportive fiscal and monetary policy. The recent underperformance will reverse in 2026 as the S&P U.S. Dividend Growers Index outperforms the S&P 500.
5. From rate cuts to rate hikes. By the second half of 2026, the market anticipates a greater chance of rate hikes than rate cuts in 2027. The current consensus is that a newly installed, Trump-approved dovish Fed President will push for more rate cuts throughout 2026. However, the combination of sustained strong economic growth, somewhat sticky inflation, large ongoing budget deficits, and pushback from Fed governors opposed to the Chairman’s dovish arguments leads the market to anticipate at least two rate hikes in 2027 by later this year. The U.S. 10-year yield flirts with the 5.0% level, contributing to a 10% correction in the S&P 500 and a significantly steeper decline in the Nasdaq.
6. Slow and Steady Finally Wins the Race. The Invesco S&P 500 High Beta Index has outperformed its low-beta counterpart, the Invesco S&P 500 Low Volatility Index, by 18% per year over the last three years. In a classic case of mean reversion, boring will become increasingly beautiful in 2026 as investors finally move away from “lottery ticket” stocks with lofty valuations and leverage in favor of the duller stocks that have actually outperformed the broader market over time with the additional benefit of reduced choppiness. There will be periods of meaningful angst within largely unregulated, often high-risk areas such as private credit. The Magnificent Seven stocks in aggregate are middling performers and the S&P 500 Equal Weight Index outperforms the traditional market-cap weighted S&P 500.
7. The Japanese comeback continues. After three-plus lost decades since 1989 marked by negative returns, deflation and self-induced policy errors, investors still do not appreciate the country’s recent metamorphosis despite the doubling of the MSCI Japan Index over the past three years. The recent increase in bond yields is widely viewed as a bearish indicator, but the absolute yields are still quite low and indicative of a bona fide break from deflation. Other elements of the Japan story are very much in line with what has worked in other markets, including significant fiscal stimulus and rising defense expenditures. With help from continued improvements in corporate efficiency and governance, Japan gains over 15% in 2026, making it one of the world’s best performing developed markets.
8. Revenge of the Nerds V: The Accountants Strike Back. For those of us of a certain age, it has been far too long since 1994’s Revenge of the Nerds IV: Nerds in Love, the last installment of the movie franchise. Although I am not convinced that the late 1990’s internet bubble is directly comparable to today’s AI-related euphoria, one commonality is that companies are increasingly using aggressive accounting techniques, including assorted off-balance sheet items, to help mask differences between earnings and cash flow. This will become readily apparent as several high-profile companies have their accounting techniques come under intense scrutiny.
9. Software stocks regain favor. The S&P Software & Services Select Industry Index has lagged the broad S&P Technology Select Sector Index by about 13% per year over the past three years as investors have feared that software will increasingly be usurped by AI. Those fears intensified in 2025 as corporate layoffs rose, reducing the per-employee charges levied by enterprise software firms. The trend reverses in 2026 as it becomes clearer that software companies are increasingly harnessing AI to hasten innovation and improve efficiency both internally and for customers. With an additional boost from heavy M&A activity, the S&P Software & Services Index outperforms the broader tech sector by over 10%.
10. The Ukraine War ends, prompting even the New York Times and CNN to support a Nobel Peace Prize for President Trump. It will be a fragile and contentious ceasefire, but one that largely ends the bloodshed. President Trump takes credit for ending his ninth war at the newly dubbed Donald J. Trump Institute of Peace stating that “I essentially cured Covid. I’ve now ended the world’s wars. I deserve this prize more than anyone in history.” The Peace Prize is further supported by the near-collapse of the Iranian and Cuban governments. The news is less favorable as it pertains to intensifying pressure on Taiwan from China. Trump does not actually win the Nobel Prize.