How will politics shape markets in 2026?

Investing.com -- Political developments will remain a dominant theme for investors next year, but UBS says their market impact may prove temporary.

In a report headed by UBS chief investment officer Mark Haefele, the bank said “political headlines will remain front and center in 2026, but history suggests their impact on financial markets is often short-lived.”

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UBS argues that while trade policy, domestic politics, and geopolitics drove volatility in 2025, investors have since refocused on “solid economic fundamentals, falling interest rates, and structural growth trends like AI.”

Trade policy is expected to be a key flashpoint. UBS highlights that the U.S. Supreme Court is preparing to rule on the administration’s use of the International Emergency Economic Powers Act for tariffs, a decision that could affect “around 70% of tariff revenue.”

If existing tariffs are struck down, UBS warns that “new, more targeted tariffs are likely,” raising uncertainty, particularly if trading partners respond in kind.

Still, the bank notes that a divided Congress, which it sees as likely after the midterms, “could limit major shifts in trade policy.”

Leadership transitions will also shape sentiment, according to the bank.

“The Fed will get a new chair in 2026, with challenges ahead given high inflation and debt, but we expect monetary policy to remain broadly supportive for markets,” stated UBS.

The bank added that the U.S. midterm elections could add headline risk, but UBS stresses that “markets typically look past election cycles.”

Globally, UBS sees persistent political risks, pointing to instability concerns in France and the U.K., ongoing conflicts in Ukraine and the Middle East, and a busy electoral calendar in Latin America.

In Asia, attention will turn to Japan’s fiscal policies and China’s new Five-Year Plan, which emphasises “growth, security, and technology.”