Outlook for 2026: Not Pear-Shaped but K-Shaped

Outlook for 2026: Not Pear-Shaped but K-Shaped
By Kirsten Boldarin, Amplifi Group CEO

It was certainly looking pear-shaped on 2 April 2025 when President Trump announced sweeping tariffs on ‘Liberation Day.’ The market response was swift and punishing - at least we got some great penguin memes out of it. This was shortly followed by Robert Armstrong of the Financial Times coining TACO – Trump Always Chickens Out. Much of the initial tariff rhetoric was walked back (China’s rare earth leverage proved effective too) and markets returned to the races. 2025 then went on to deliver the third consecutive year of stock market gains.

After a buoyant 2025, what does 2026 have in store for the economy and markets? 

At present, the global economic outlook appears solid. Global real GDP growth is running at 3.1% (2.1% in the US). Inflation has moderated from its elevated levels and while not at target for many central banks, is far closer to target than was the case three years ago. The unemployment rate has ticked up but remains modest relative to history. With this backdrop and additional fiscal stimulus to come via the ‘One Big Beautiful Bill Act’ economic growth should remain solid in 2026, with no recession on the horizon. 

However, the positive economic environment, is not serving all socio-economic groups equally and we have seen the emergence of commentary referring to the so-called ‘K-shaped’ economy. A big buzzword in 2025, the K-shaped economy refers to the fact that a portion of the population is doing particularly well (the upward part of the K) versus those who are struggling (downward-sloping arm). Those doing well are typically older, wealthier individuals who are asset-rich with limited debt. They’ve received the benefit of an appreciating stock market, are less impacted by affordability challenges and are therefore able to keep spending. However, younger people and those in lower socio-economic groups are not feeling nearly so flush. This shows up in indicators like consumer sentiment where headline macroeconomic data points to robust end demand and yet personal views on the economy don’t match the outcomes. 

In addition, we have seen increasing stagnation in the employment market and a period of ‘jobless’ growth. Usually, when corporate profits are rising, demand for labour increases too, but this has not proven to be the case. This has been attributed to a number of factors. First, scarring from Covid, companies reduced their labour force dramatically only to struggle to rehire post Covid. Second, tariff uncertainty is making firms cautious about the outlook. Third, are we starting to see the beginning of AI entering the labour market? 2025 had more job cuts than 2024 in the US, with AI the sixth most cited reason. The number one driver of job cuts in 2025 was DOGE, taking out almost 300k jobs last year[1]. While we won’t get a repeat of DOGE in 2026, we do anticipate that AI labour replacement will pick up. This is good for profit margins, but will likely exacerbate the K-shaped economic dynamics currently in play. 

The economy is not the market, but it does provide an important backdrop. We are currently counterbalancing the benign environment, the impact of ongoing support from fiscal stimulus, and central bank easing, against elevated market valuations. This leads us to a neutral and well-diversified stance with respect to equities. A less positive stance than we held at the start of 2025 (see Outlook for 2025: How about no landing?). 

Why the more cautious stance despite the benign macro backdrop? 

First the macro is not the market. The buoyant nature of the equity market has led to heightened levels of speculation with increased retail participation, particularly in the options market. Margin debt is up substantially. Add in high levels of stock concentration and it increases the likelihood that a market correction is exacerbated by a liquidity shortfall – it is hard for so much to squeeze through a small door all at once. 

In addition, there has been much commentary about the role of private credit in the expansion of AI related capex and the inherent interconnectedness of large technology companies. The FT has an excellent article on the financing of the Hyperion Data Center – the largest US corporate bond issuance in history which raised $27.3bn to fund Beignet Investor LLC, a joint venture between Meta and Blue Owl, a private capital firm. Similarly, one can feel queasy looking at the Bloomberg ‘circular’ diagram which shows the interconnectedness of technology companies and their revenue streams. Nvidia sells chips to Oracle and OpenAI, but also then invests into those businesses. In addition, the sheer scale of ongoing infrastructure capex means that one single sector is having an excess contribution to overall GDP growth. It all feels highly concentrated.  

The confluence of all of this means that market fragility has increased even if the broad backdrop remains relatively benign. Investors should therefore have a higher threshold for making investments and a strong focus on fundamentals. There are likely to be significant productivity gains from the widespread adoption of AI, but as we examined last year in our article about the adoption of electricity, another example of a GPT (general purpose technology), the course did not run smoothly from an investment perspective with much redundant capacity which took a long time to absorb.

On the topic of non-speculative assets with positive expected cashflows, we turn now to the domestic market. With a weak economy, and limited exposure to the tech thematic that drove gains in other markets, NZ was not an investing destination of choice for many investors, eking out a gain of 3.3%[2]. The weak economy has been driven by a variety of factors, but not least, a pullback in government expenditure, with the 2025 budget operating allowance the tightest in a decade according to UBS[3]. However, as we enter an election year, we anticipate an increase in expenditure, at the same time as lower interest rates are now finally feeding into the wider economy. And, from a stock market perspective, the NZ equity market does not have those markers of fragility inherent in other equity markets. If we look on a bottom-up basis in building out return expectations, we can get to a c. 12% return without any multiple expansion. An NZ equity allocation certainly falls in the fundamental investing rather than the speculative camp. 

2026 feels like a ‘proof-of-concept’ year, in which we gain clearer evidence on the trajectory of both AI and the broader economy. As that evidence emerges—whether confirmatory or not—markets are likely to remain skittish, with moves amplified by the leverage inherent in the system. In this environment, we recommend keeping a cool head, with a strong emphasis on diversification and fundamentals. 

 
[1] Job cut data is tear-to-date to Nov 2025 from Challenger, Gray and Christmas
[2] S&P/NZX 50 Gross Total Return Index, Bloomberg one year data to 31 Dec 2025; calculations by Mint
[3] UBS New Zealand Equity Strategy; Outlook 2026: Geared for growth, 17 Dec 2025