Why BCA says 2026 will be a revelatory year

Investing.com -- 2026 will be a revelatory year for both the U.S. economy and financial markets, BCA Research argues, as slowing labor demand and the durability of the artificial intelligence boom converge into a key test.

The macroeconomic research firm says the coming year will “clarify whether weakening U.S. labor demand tips the economy into recession, and whether the AI boom will continue to boost economic growth and corporate earnings.”

BCA says the U.S. has entered what is known as a “K-shaped” economy, with softening job growth on one side and strong corporate investment and wealth effects on the other.

But the research house does not believe this trend can last. Leading indicators point to a continued rise in unemployment, with small-business sales expectations weakening and job openings falling across most industries.

BCA stresses that supply-side explanations for slowing hiring—such as immigration constraints or AI-related displacement—do not fit the data, reinforcing the view that aggregate demand is losing momentum.

Policy support may not prevent the labor market from deteriorating further. The stimulative provisions of the One Big Beautiful Bill Act will add fiscal thrust next year, but BCA notes that rising tariff revenue will offset most of that stimulus, potentially resulting in “net fiscal drag.”

Monetary easing is also unlikely to be a game-changer. Investors expect several Fed cuts in 2026, however, BCA doubts that “a few extra cuts are likely to meaningfully support consumer spending in 2026.”

Housing and manufacturing, the two most interest-sensitive sectors, show little evidence of improvement despite a year of easing.

The Supreme Court’s tariff ruling is another hinge point. Markets assume a high probability that existing import tariffs will be struck down, but BCA considers the odds “under 50%,” warning that investors are overestimating how quickly tariffs might be removed.

Even if the tariffs were overturned, the administration could reimpose them under separate legal authorities.

On the other hand, AI-related capital spending remains a clear positive impulse. BCA expects AI capital expenditure (capex) to accelerate in 2026 even if total spending falls short of hyperscaler projections.

That would provide a measurable tailwind to nonresidential fixed investment, though the firm highlights constraints such as rising electricity costs, local opposition to data-center buildouts, and the massive capital required to sustain the buildout.

Whether these investments translate into ongoing earnings strength for tech-related sectors is a central question for next year.

Against this backdrop, BCA recommends maintaining a neutral equity stance in multi-asset portfolios, noting that “the trend in the U.S. labor market suggests we are more likely to downgrade than upgrade stocks next year.”

Elsewhere, the firm expects weakness in cyclically sensitive commodities, citing soft global manufacturing and fading Chinese demand.

Gold remains a preferred holding, with BCA noting that China’s strategic buying continues to support prices and that “the majority of BCA strategists are overweight gold” until clear technical weakness emerges.

On currencies, BCA is structurally bearish on the U.S. dollar but says the cyclical outlook depends on recession risk. A downturn could still spark a tactical dollar rally, while a non-recessionary equity selloff—especially one tied to fading AI enthusiasm—would likely push the firm toward short-dollar positions.

In fixed income, BCA continues to favor a bull-steepening of the U.S. Treasury curve and prefers government bonds over corporate credit, arguing that rising unemployment risk supports maintaining long duration exposure.