Five grey swans for 2026

Alongside our central global outlook for 2026, and after reviewing our industry peers’ thinking, we have challenged ourselves to look beyond the base case. However, rather than chase the truly unpredictable, we’ve focused on credible scenarios that sit just outside consensus: ideas that could plausibly materialise yet are under‑appreciated in current positioning. These five ‘grey swans’ test assumptions should the world take a slightly different turn.

1) Stars and stripes, full throttle – US economic boom?

The US has proved remarkably resilient to shocks in recent years: energy price spikes, central bank hikes and now tariffs. For 2026, the market expects Federal Reserve (Fed) rate cuts, rebate cheques and deregulation that makes it even easier for banks to lend. What if there are no further shocks to restrain the economy? Strong corporate balance sheets and continued rapid investment in AI could lead a broader capex revival. Consumer spending is supported by equity‑wealth gains. Strong demand could reignite hiring, further boosting household incomes and spending. In short, why would the economy settle at equilibrium? The ingredients could be in place for a late‑cycle boom. Potential new Fed Chair Kevin Hassett has said he wants to run the economy hot, given the potential positive supply shock from AI. Eventually, it could end in an overheating labour market, inflation and soaring bond yields. The Fed would have to slam on the brakes, but it could be quite a ride first.

 2) Peace in our time – A European détente?

“My proudest legacy will be that of a peacemaker and unifier,” so said President Donald Trump at his January inauguration. The war in Ukraine, which began nearly three years ago, continues. With Trump’s eyes on the coming mid-term elections, mediation efforts have intensified. Will these succeed? Consensus is sceptical, as balancing Russia’s and Ukraine’s interests while creating a peace that doesn’t encourage global wars over territory is hard – but perhaps not impossible. If peace is reached, exchanging territory for security guarantees, global energy prices may recede, with some Russian pipeline gas potentially re‑admitted to Europe. The region’s fiscal pressures, with a defence ramp‑up and steeper energy subsidies, might also ease, supporting the region’s bond market. Meanwhile, Europe’s defence sector could give up some of its gains. Though some might worry at the price and durability of any peace, for markets any peace (if it comes) will be no less welcome.

3) Unshackled – UK surprises positively?

The UK economic outlook is seen as more precarious than its peers due to low job vacancies and fiscal tightening. But emerging slack, combined with a normalisation of prices and wages as annual contracts reset, could catalyse more rapid policy easing from the Bank of England. With fiscal rules now assessed only once a year and more ‘headroom’ baked in, we should see less speculation about which sector is about to be taxed next. Combined, looser monetary policy and less uncertainty could unleash animal spirits and bring down the elevated household saving ratio. The government’s pro‑growth planning reforms could also unleash a wave of investment projects that have been held up by Nimbyism. UK equities have, to most people’s surprise, outperformed US counterparts this year. Could we see the same again next year? 

 4) From helpful colleague to reluctant competitor – AI disruption?

AI’s rapid progress has stunned the world since 2023, with ChatGPT topping app charts for months. Yet, so far, it remains just an assistant. What if that changes? If AI becomes rivalrous with human workers, mass technological unemployment could follow. This would echo the late Industrial Revolution, which saw unemployment rise, traditional ways of life end, new ideologies (nationalism, Marxism) form, and political violence surge. Could we see a repeat? The popular mood, particularly in the US, has turned more adversarial: the 2025 Edelman Trust Barometer shows four in 10 people view hostile activism as a viable path to change. If anger over job losses accelerates, could more widespread political upheaval return? Markets and politics could feel the shock. Regulators, especially in the US, have cheered AI adoption, but a shift in political winds could trigger restrictive policies, stunting the AI boom. The feverish atmosphere in markets might augur a deeper sickness (for politics and investors) coming sometime soon.

 5) Dragon re‑ignition – China recovery?

China is still stuck in deflation, the property market has yet to stabilise, and labour‑market indicators continue to deteriorate. It is hard to be positive on Chinese assets. But what if China announced a sizeable fiscal stimulus, in the order of 1-2% of GDP, in 2026? While gross government debt is close to US levels, the Chinese state, in contrast to the US, is a net creditor. What if this coincided with a DeepSeek*‑like technological breakthrough, further increases in global export market share, or something else to highlight China’s economic power? Admittedly, the property market has yet to stabilise, but the rate of decline is low meanwhile and even here better news might be just around the corner. Equity earnings have already bottomed after contracting for five years running. The dragon’s slumber may be coming to an end. 

These grey swans are not forecasts for the future, but as we head for the new year, we stay true to our motto: prepare, don’t predict.

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

* For illustrative purposes only. Reference to a particular security is on a historic basis and does not mean that the security is currently held or will be held within an L&G portfolio. The above information does not constitute a recommendation to buy or sell any security.