The race for 2026 markets kicks off now – what to expect
(This commentary first appeared in Callaway Climate Insights, a partner of ClimateCrisis247)
SAN FRANCISCO (Callaway Climate Insights) — The race for global markets in 2026 starts now.
The Federal Reserve’s widely expected quarter-point rate cut, the last of the current year, allows investors the breathing room to head into the final trading sessions of 2025 without major economic surprise, and to gear up for what comes in 2026.
After a record year for commodities, from gold and silver to coffee and cocoa, and for U.S. stocks, including renewable energy stocks, and expectations for at least two more rate cuts early next year, the pencils, calculators — and AI simulators — will be out as investors large and small try to gauge how the markets will react in coming months.
Our expectations are that the stunning rallies we’ve seen this year will stumble in 2026 as the U.S. economy slows down and AI valuations hit reality. But the underlying trends of lower rates and surging demand for electric power will lend a powerful cushion to potential market corrections.
Predicting markets year to year is a crap shoot. We’ve had our share of misses. But last year we called most of it right as the rush to build AI data centers lifted most energy boats, including nuclear, solar, and battery energy stocks. The rally offset President Donald Trump’s attempts to hobble what he calls the green new scam.
Surprisingly, oil had a lousy year, falling more than 18% to under $60 a barrel and holding back oil stocks, which hurt the carbon storage and removal business efforts designed to help mitigate climate change.
But green stocks were easily the biggest stunner of the year as some of the bigger energy companies, such as Constellation Energy CEG 5.17%↑, First Solar FSLR 5.39%↑ and GE Vernova GEV -0.66%↓, the energy spinoff of General Electric (GE), all had banner years.
The outlook for rates going forward is muddled, as always. The federal funds rate currently predicts two more rate cuts before Fed Chairman Jerome Powell is removed by Trump next spring. With the economy showing signs of struggling, such as rising layoffs, higher prices, and impacts from tariffs, it’s hard to see a future Fed with Trump’s hand-picked leader not lowering rates further. Much less raising them ahead of midterm elections.
Likewise, the rush for more power will continue. The backlogs for new energy projects to link into electric grids are still huge, and the issue is starting to impact AI data centers, which has attracted the president’s ire. As the White House moves to slash regulations through Trump’s expected executive order in coming weeks, access to the grids will be front and center, which is bullish for utility stocks and other energy plays.
That won’t be enough to contain a reset in AI stocks, particularly the big ones such as Amazon AMZN -0.08%↓, Meta META 1.60%↑ Microsoft MSFT 1.67%↑ and Alphabet GOOGL -1.77%↓. Nor will it stop any downturn from spreading to the energy stocks underlying the data center surge. At some point, the mania around AI will settle into a more realistic growth pattern, as it did with the Internet a generation ago, and even with electric vehicle and other renewable energy shares five years ago.
But the loss of the extreme hype will ultimately be healthy for the market, as investors take advantage of lower stock prices to start building positions again. Like with the Internet and what we’ll see with EVs as robotaxis become bigger, AI capabilities and opportunities will continue to grow.
In short, it will be another year of volatile markets just as it always is, with political, geopolitical, technology, and global warming challenges impacting markets minute to minute. As we write this, for example, the U.S. just seized a Venezuelan oil tanker, which could lead to a rocky Christmas season for news headlines.
But we don’t know anybody going to all cash at this point. For climate investors, moves in green stocks will depend as they always have on lower interest rates. As we head into 2026, that trend remains at least as stable as anything else coming out of Washington.
