Three Non‑AI Market Risks That Could Roil 2026

While artificial intelligence dominates headlines, investors should not ignore other risks that could shape markets in 2026. Three stand out: tighter monetary policy and elevated rates, fiscal and sovereign debt pressures, and geopolitically driven commodity or supply shocks.

First, monetary policy. If inflation proves stickier than expected or wage growth accelerates, central banks — led by the U.S. Federal Reserve — may keep policy rates higher for longer. That scenario would compress equity valuations, pressure rate-sensitive sectors and elevate borrowing costs for both governments and corporates. Bond markets could see renewed volatility as investors reassess terminal rates and the pace of balance-sheet normalization.

Second, fiscal and sovereign debt strains. Many advanced and emerging economies enter 2026 with large deficits and rising debt-to-GDP ratios. Renewed market scrutiny of public finances — prompted by slowing growth, political gridlock over budgets, or unexpected interest-rate increases — could widen sovereign spreads, limit fiscal flexibility, and force austerity measures. Banking systems exposed to sovereign risk or to heavily leveraged corporate borrowers would be vulnerable, amplifying downside risks for credit markets.

Third, geopolitical and commodity shocks. Escalation of regional conflicts, trade disruptions, or actions by major commodity producers (for example, oil exporters) could trigger sharp price swings in energy, metals and agricultural markets. Supply interruptions would feed inflation and disrupt corporate supply chains, hitting margins and complicating central-bank policy decisions.

Implications and mitigants: Portfolio managers should stress-test holdings against higher-for-longer rates, rising sovereign risk premia and commodity price spikes. Diversification across geographies and asset classes, active duration management, and selective exposure to companies with strong balance sheets can reduce vulnerability. Policymakers’ responses will matter: decisive fiscal adjustments or coordinated international action can limit market fallout, while delayed or fragmented responses could magnify it.

Investors shouldn’t confuse AI’s transformative potential with immunity from classic macro and geopolitical shocks. Preparing for elevated rate risk, fiscal stress and commodity-driven disruptions will be essential to navigate 2026 with resilience.