Patrick
Welcome back to the Barclays Brief podcast. It's Patrick here. And today we have a special episode. Given the volatility we've seen so far in 2026, we felt this was the right moment for you to hear directly from two of our most senior leaders in the markets division. So sitting next to me is my co-host Ronnie Wexler. Ronnie is our Global Head of Equities Distribution, and of course, a very familiar voice on The Barclays Brief and opposite Ronnie is Adeel Khan, our Global Head of Markets. Adeel plays a central role in shaping our Markets division as well as driving our firm wide strategy. So I'm really excited to be here today and looking forward to hearing what Adeel expects will define the narrative in 2026. Ronnie, Adeel over to…
Ronnie
Adeel welcome to The Barclays Brief. It's great to have you here. Why don't we start by putting 2025 in perspective? What were some of the key themes that stood out to you from the year?
Adeel
Thank you Ronnie. First of all, absolutely delighted to be here, and let me start by thanking all of our listeners. Look, we entered 2025 with a lot of uncertainty. Trade policy out of the US was unclear – tariffs peaked as high as 28% and settled in the mid-teens, a level not seen since 1930s. The China-US relationship was unclear, we were worried about inflation expectations. So there were tons of headwinds going into 2025. But despite all of that, global GDP was resilient at around 3.5%. And US ended the year above 2%. Now, for me, there are few reasons for that.
Firstly, while we're seeing these geopolitical uncertainty, which could be around tariffs or Greenland, but things tend to resolve themselves one way or another. But this is starting to create a by the geopolitical volatility market for our clients.
Secondly, we know over 90% of the US GDP growth has really come from consumption thanks to the mighty US consumer.
So the question that we ask ourselves is why is the US consumer so resilient? And it is really the wealth effect coming from the equity property ownership. And let's not forget that stock ownership in US is materially higher than the rest of the world. And this has led to US household net worth hitting an all time high of around $180 trillion. and we know 2 to 5% of this translates into consumption over time.
Now, another supportive factor was the AI driven CapEx surge we've seen. The five big hyperscalers spent around $400bn in 2025. And I believe AI and technology is providing a level of underlying confidence to business CEOs around the US economy, which is really allowing them to make bolder decisions around M&A and CapEx and creating a great investing environment for the US economy.
Ronnie
Let's drill down into that great investing environment. How are you thinking about, and what's your framework for the markets for 2026?
Adeel
Yeah, look, as I look towards 2026, I expect a lot of these trends to continue. Firstly, the US consumer should stay strong. You have the tailwind from the big beautiful bill. Probably around $460bn of tax credits are coming. Two thirds of which will go to individuals. They will spend that money one way or another, which should help the economy in 2026.
But on the other side, when you look at technology or AI, that investment feels like it's going to continue. The big five hyperscalers are expected to spend around $600bn in 2026, which should create more optimism, into the economy.
At the same time, I do feel like the story is also shifting from an infrastructure build out towards monetisation of that infrastructure. Now we also have the midterms. Affordability is at the top of the mind for the US administration. They will push supportive measures through four channels in our mind: the consumer credit. Housing affordability, energy costs and finally health care costs.
This should create tailwinds for the lower part of the K-Shaped economy, which has been struggling over the last few years. Now, I know that the labour market is weak, but we're just in a ‘no hire, no fire’ type of market. So I feel like the labour market impact will probably be minimal like we saw in 2025. But overall, I expect a pretty supportive backdrop for 2026.
And this is something Ajay, our Chairman of Research, has also been arguing despite all the noise we've seen at the start of the year.
Ronnie
With that framework in mind, let's dig in at an asset class level. How are you feeling about equities?
Adeel
Look, it's hard to feel negative about equities. Equity markets have been on absolute fire, with around 25% in 2023, 24 and 18% in 2025. Now the good thing is, over 75% of the S&P return has been driven by earnings, not multiple expansion, which is great because it means the rally might be more sustainable.
But we know the returns since Covid are just rare. So you just have to be a little bit extra cautious on beta at these levels. And parts of the equity market are just feeling very concentrated, which we know makes investing so much harder for all of us.
Now, as we go into 2026, it feels like equity markets can grind a little higher from here, mostly due to the growth led backdrop of the US economy, but probably at a much more moderate pace. You know, we shouldn't be expecting another 20% type year, which is probably way too bullish, especially given the valuations are also high at 21x or 22x of forward earnings multiples.
And when we speak to clients, it feels like we're setting up a market where stock picking and sector selection matters more. To me, it's starting to feel like the easy money has been made, and it'll be a lot more about Alpha now.
Ronnie
I agree, I think you're going to have to be very focused on the assets you select to outperform this year in the equity market.
How do you think about driving that alpha, and specifically how would you approach the tech sector
Adeel
In tech, our clients are telling us their focus seems to be shifting from infrastructure build out to AI applications: enterprise tools and consumer devices. Think about manufacturing firms using AI for supply chain optimization are banks for fraud detection, so expect companies providing these services to really benefit over the course of ‘26.
I also think 2026 will be a lot about the broadening out this broadening out theme, the broadening out of the equity markets rally. We are already seeing signs of investors looking for value in neglected sectors like the industrials, small caps and energy. And you can see that in the Russell outperformance so far in the year. Similarly I expect broadening of the US versus the rest of the world in 2025.
Europe outperformed US by 16% which was the best year since 2006. Emmanuel Cau, our European Equity Strategist, thinks we will see more of that over the course of ‘26.
Ronnie
So we're still in January and we've already seen several bouts of macro driven volatility. How are you thinking about the macro landscape and these shocks.
Adeel
Yeah a lot of what we're seeing in ‘26, it feels like it is a continuation of 2025. Firstly it's a lot about FX and the dollar. Right now in 2025 the daughter had a meaningful down year. The US dollar index was down roughly 9 to 10%, its worst year since 2017. We are now testing a decade long uptrend line. Any break here can cause an accelerated move lower in dollar in my mind.
Ronnie
The dollars’ in huge focus for all of our investing clients. Do you expect this down move to continue?
Adeel
Look I'd be cautious around the dollar. It's still overvalued on a trade weighted basis, probably by 12 to 15%. So I think this normalisation will continue, although probably at a much slower pace.
The other thing to note is in 2025 we saw 19 cuts by major central banks. Interest rate policy was a big driver of flows. However, when you look at 2026, our economists are only expecting two cuts in the first half of 2026.
So I think what you'll see is that rate wall will subside and probably stay low and FX will probably dominate headlines over the course of the year. Now, before we move off macro emerging markets (EM), local markets to me feel like they're in a sweet spot given global growth and the inflation picture.
Commodity exporters like Chilean Peso supported by copper or Brazilian Real, South African Rand should all stay supportive and watch out for how Iran plays out, as it can be very supportive for Turkey long term.
Ronnie
You mentioned rates coming down. That feels supportive to credit markets for me. Before running Markets you built your career in Credit. The Credit Markets are so important for financing a lot of the AI themes and infrastructure that matter for the entire market. How are you seeing the credit markets coming into 2026?
Adeel
Yeah. Firstly, bonds generally had a big comeback in 2025. Best year since 2020. So Credit obviously benefited from that. The US agg bond index was up 7% in 2025. I think the big challenge for credit is if you look at IG spreads at 70 basis points higher yield at 250 basis point. These are very tight levels. We're touching some of the all time tight. But at the same time we have coupons at 4.9% for investment grade and nearly 7% for high yield, which is pretty good. It's hard to lose money with those coupons. So the question is, are you a spread investor or a yield investor? And most clients tell me they're a yield investor.
So I expect credit to generally stay supportive. And I think what you'll see is more of this have nots and have some type of market with. But you know, with the ratio of triple C versus single B probably staying elevated, as we've noted in some of our credit alpha pieces lately.
And lastly, I think I think we have to look at the financing markets which are wide open. You know, US investment grade issuance in the first week of January alone was $95 billion, which is the largest ever outside of Covid.
Ronnie
All right. Let's move to the really fun part of the podcast – your predictions for 2026.
Adeel
I'll make three predictions, and I worry that I'm going to regret some of these by the end of the year, because most of them feel a little contrarian.
Firstly, I think inflation expectations will probably stay anchored and inflation should fall to 2% by the end of the year. I think that tariff one offs would start to wear off. I think that the shelter price gasoline price probably subtract 30 to 40 basis points from the headline number.
Secondly, I would watch out for further productivity gains to the upside. I don't expect 2026 to be about job displacement due to AI, but more about how much more productive we are due to its usage and that will start to feed through into the economy. Let's not forget third quarter US productivity was stellar at 4.9%.
Lastly, and I feel like this is probably the most difficult one I am, but I'm quite hopeful and I'm really hopeful that Europe will make progress on the Draghi plan. We are at 11% of the 383 recommendations adopted, and I think the stars are aligned for them to act.
Ronnie
Let's come back to geopolitics just for a moment here. These matters a lot for the market. How are you thinking about geopolitics from here on out?
Adeel
Tough question. Geopolitics are of obviously very hard to predict. But I think the geopolitical noise will start to come down. Greenland may get resolved. US-China might not escalate due to the position China holds on rare earths, but it feels like post the midterms, I think most of the key economies will start to focus more on domestic issues.
Ronnie
Let's talk a little bit about the risks out there. You spend a lot of time thinking about risk factors for the markets in the firm. What are some of the big risks that are on the horizon that you're focused on right now?
Adeel
The main risk, I think, that most of us will have to navigate over the course of the year is that we are living in very, very stretched valuations for the equity market, especially in US. And for good reason. Along with that comes the real question of return on investment of AI, which I don't think is going away. You know, markets are not going to wait for five years for that return on investment to appear. For me, it feels like 2 to 3 years is probably the sweet spot.
And I think the other trend we're going to see as we progress through the year is the question around this pace of AI adoption, and how quickly are companies adopting the AI technology.
So to me, it feels like these two factors should give us some periods of volatility, which also means there's enough for all of us to do. Traders and investors over the course of the year
Ronnie
Feels like it's going to be a busy and exciting year. How do you want to close it out?
Adeel
Given this my first appearance at this podcast, I would like to end this on a rosy note. My key call is slightly optimistic. Inflation tames to roughly 2% growth, also supported by US. And you get a productivity upside surprise along with a weaker dollar which I believe should support risk assets. I think what we'll have to really navigate over the course of the year is stretch valuations.
And this is where I think 2026 will be different from the last three years. It feels like the easy money has been made. Alpha will play a much bigger role than beta. So choose your sectors, companies and sovereigns very wisely. And lastly, I wish all our listeners a happy and prosperous 2026.
Ronnie
Adeel, great to have you on the pod, thanks for doing this.
Adeel
Thank you for having me, Ronnie and I look forward to listening to future Barclays Briefs.
Ronnie
My takeaways from this conversation with Adeel: He sees a very dynamic market environment where asset selection will be critical. He's concerned about more dollar weakness, so that is something to pay attention. While also being constructive on the inflation picture and excited about the benefits from AI Inflecting. If you enjoyed this conversation with Adeel, please hit subscribe wherever you listen to your podcasts.
