2025 was a strong year for equities. The MSCI World Index rose by 20% in USD terms, and the performance excluding the US was even stronger, the MSCI World ex US index rose by nearly 30%. The question now for investors is, can the rally continue? There has been a lot of anxiety about high valuations, an AI bubble, concerns about the health of the US labour market and the prospects for economic growth, however, stocks have continued to rally even with these fears.
As investors consider their portfolios for the new year, the question is how will markets navigate 2026? Although concerns about global growth, the end of monetary policy loosening and high valuations are likely to persist well into the new year, there are also reasons for optimism.
Analysts are optimistic about the outlook for earnings in the US, Asia and Europe, with expectations for earnings growth between 13-15%. For Asia and Europe, this rate of earnings growth is unusual, and there is a risk that the bar could be too high. However, a stronger economic outlook, reduced tariff headwinds for the Eurozone, and continued fiscal expansion, especially in the form of defence spending, provides a strong backdrop for European equities this year, and we may see continued outperformance vs. the US.
2025 was a strong year for equities. The MSCI World Index rose by 20% in USD terms, and the performance excluding the US was even stronger, the MSCI World ex US index rose by nearly 30%. The question now for investors is, can the rally continue? There has been a lot of anxiety about high valuations, an AI bubble, concerns about the health of the US labour market and the prospects for economic growth, however, stocks have continued to rally even with these fears.
As investors consider their portfolios for the new year, the question is how will markets navigate 2026? Although concerns about global growth, the end of monetary policy loosening and high valuations are likely to persist well into the new year, there are also reasons for optimism.
Analysts are optimistic about the outlook for earnings in the US, Asia and Europe, with expectations for earnings growth between 13-15%. For Asia and Europe, this rate of earnings growth is unusual, and there is a risk that the bar could be too high. However, a stronger economic outlook, reduced tariff headwinds for the Eurozone, and continued fiscal expansion, especially in the form of defence spending, provides a strong backdrop for European equities this year, and we may see continued outperformance vs. the US.
Our favoured sectors in 2026 include the continued outperformance of global banks, a renewed interest in healthcare stocks and a broadening out of the AI trade. Below are our five stocks to watch as we start the new year.
1. BP - Energy stocks
There are two reasons why we like energy companies in the coming months. Firstly, the oil price had a torrid time in 2025. Brent crude fell 18% last year, as Opec + boosted supply, which led to a supply/ demand imbalance and ultimately weighed on the oil price. However, Opec is signaling a desire to reduce supply, in an effort to boost the price. The second reason why we like energy stocks is that they can act as an effective hedge against inflation. There are concerns that President Trump’s tax cuts and the lagged effects from tariffs will boost US inflation this year. If prices do rise, then we could see energy stocks come back into fashion.
A new CEO at the helm of BP, who is unashamedly pro-oil and gas could rejuvenate the UK oil major’s fortunes. Its share price underperformed the broader market last year and rose 9%, however, the stock price fell nearly 4% in December. This offers an attractive entry point in our view, with a target of 450p in the coming months.
Combined with strong dividends and a diversifying effect, the energy sector could take off in 2026.
Chart 1: BP, daily chart
Source: Bloomberg and XTB. Past performance is not a reliable indicator of future results.
2. Google - AI Stocks
Google solidifies its position as the one stop shop for AI. 2026 will be the year when AI technology needs to prove its utility. For most of the last few years, the focus has been on infrastructure build, and this has led to handsome stock market growth and sky-high valuations for the likes of Nvidia, Microsoft, Amazon, Tesla and Google. However, in recent weeks, the AI trade has come up against a wave of skepticism and anxiety. However, investors may be underestimating the potential for AI as we move into 2026.
Google had been the top performing Magnificent 7 stock for most of Q4, however, it slipped in December and returned to the middle of the pack last month. Google’s share price dropped by nearly 4%. This comes after a rapid 65% gain last year, so a pullback offers an attractive entry point for investors to own the stock.
Google’s impact on the AI ecosystem has become pervasive. Its chips are now a serious competitor to Nvidia, and its Gemini model is also giving ChatGPT a run for its money. Google is also becoming an effective end-to-end AI company with its expansion into cloud, and into cloud cybersecurity. This means that Google starts 2026 as the most important AI company in the world. With greater uptake of AI expected in the coming months, this could be an attractive time to own Alphabet, Google’s parent company.
Chart 2: Google, daily chart
Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
3. Smith and Nephew - Medical technology
Smith and Nephew, the UK-listed FTSE 100 company that provides orthopedic instruments, wound recovery and sports medicine, has also moved into advanced medical technology in recent years and this is why it is one of our picks for 2026.
Last year Smith and Nephew launched its CORIOGRAPH advanced modelling and preoperative modelling technology for full knee replacements. It is used in conjunction with its CORI handheld robotic surgery tools. Together, this new tech could revolutionize joint replacements, and we expect sales to surge in the coming months and years as demand for this surgery is boosted by a combination of an aging global population and greater acceptance and uptake of robotically controlled surgery.
Smith and Nephew’s stock price has had a good run, it is higher by 24% so far this year, however, there could be further to go as the market focuses its attention on the stocks that will gain from the increased uptake of AI. The stock price has traded in a tight range in recent months, with strong 200-day sma support at 1250p, upside resistance lies at 1300p.
Chart 3: Smith and Nephew, daily chart
Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
4.M&S - Supermarket chains
We think that M&S’s stock price could come roaring back in the next few months. 2025 was marred by the cyber-attack in April last year, which knocked its online business out for weeks. The stock price fell 13% last year as it dealt with this challenge, however, it did not rest on its laurels. Instead management oversaw a massive new investment in new stores and upgraded old ones, including expanding its food range. The company plans to open 100+ new food halls by April 2026, and is spending £500mn to upgrade its estate. The company is creating jobs and has 500 new locations on its potential location list.
The company is launching its new nutrient dense food range in January, which includes curries, salads and deserts to cater for the 1 million plus users of GLP-1 drugs in the UK. Its epic expansion plans could also capitalize on consumers spending more on food at home and treats as fiscal tightening from the Labour government starts to bite. M&S may end this year being a major force in the UK grocery business, with the potential to grab market share from the big supermarket chains. This could help the stock price to recover. As the old saying goes, you have to invest to divest, and M&S will hope that its epic investment plan will pay off.
Chart 4: M&S, daily chart
Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
5. Albertsons - US consumer stocks
US consumer stocks could stage a comeback in 2026. We like two, Albertsons, the grocery chain, and Carvana, a digital car sales platform. Both firms resonate because they are expanding their digital footprints, including an AI-powered shopping assistant for Albertson’s online business, and Carvana is seeing decent demand growth on the back of consumers looking for an alternative to traditional car dealerships. A combination of lower interest rates and fiscal stimulus from the Trump administration in the first months of 2026 could boost sales of big ticket items like cars and see revenues rise for Carvana.
Both stocks, and the overall US consumer sector, are trading at cheaper valuations than other parts of the market, and hopes are high that the US stock market rally will broaden out beyond the Magnificent 7 tech stocks as we move through this year.
Chart 5: Albertsons, daily chart
Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
Chart 6: Carvana, daily chart
Source: XTB and Bloomberg. Past performance is not a reliable indicator of future results.
Investing during a crisis: Strategies and Tips
US Presidential Election 2024: Kamala Harris vs Donald Trump. Which candidate is better for stock markets?
Understanding ISAs: A Tax-Efficient Way to Save and Invest
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
