Investors may go value hunting in 2026 as AI rally matures

• Small-cap stocks may rebound as the Russell 2000 is forecast to gain nearly 14% in 2026, driven by improving earnings and falling borrowing costs from expected Fed rate cuts.
• Gold prices could reach $5,000 per ounce according to J.P. Morgan and Bank of America, extending its historic 2025 run with continued central bank buying supporting demand.
• Emerging markets are positioned to attract strong inflows due to a weakening U.S. dollar and improved macro stability, though domestic elections in Brazil and Colombia pose political risks.

Market Summary: Value Hunting Takes Center Stage as AI Rally Matures

Key Themes for 2026:

Global investors are pivoting toward undervalued market sectors amid growing AI bubble concerns, moving beyond expensive technology stocks that dominated recent years.

Small-Cap Stocks:

U.S. small caps are poised for a comeback as earnings growth returns and borrowing costs decline. Jefferies forecasts the Russell 2000 to reach 2,825 points by year-end 2026—a nearly 14% gain. Traders expect two 25-basis-point Fed rate cuts in 2026, particularly benefiting small-cap companies with higher debt loads.

Gold:

Following its best performance since the 1979 oil crisis, gold is projected to hit $5,000 per ounce (J.P. Morgan and Bank of America), compared to $4,314.12 in 2025. Central bank diversification away from dollar-denominated assets provides additional support.

Sectors to Watch:

Healthcare could outperform driven by weight-loss drug expansion and policy support. Financials, especially mid-cap banks, remain attractive due to deregulation, AI efficiency gains, and accelerating M&A activity.

Currency Markets:

The U.S. dollar faces expected weakness as the Fed cuts rates amid a cooling labor market. Emerging market currencies (China's yuan, Brazil's real) and commodity-linked currencies (Australian and New Zealand dollars) stand to benefit. The Czech crown may gain from central bank rate hikes.

Fixed Income:

High-yield issuance reached $325 billion by mid-December 2025—up 17% from 2024—driven by dealmaking and AI infrastructure investments. The sector shows strong absorption capacity.

Emerging Opportunity:

Event contracts are entering a "supercycle," with Citizens Financial estimating revenue could jump five-fold to $10 billion by 2030. However, regulatory scrutiny is increasing.

Overall Outlook:

BlackRock strategists emphasize this environment favors active investing as investors selectively navigate markets beyond mega-cap tech dominance.