Outlook 2026: US Resilience Resilient

This environment contributed to a 9% decline in the US dollar last year and to the outperformance of several non-US financial markets relative to the US. It also fueled a steady stream of commentary pointing to the erosion of US Preeminence and even the loss of “US exceptionalism.”

However, ISG remains confident in its longstanding investment themes, despite these internal and external developments.

Let’s take a closer look at their assessment.

Is the US in decline?

Despite last year’s market turmoil, ISG explains why US declinists—those forecasting the country’s decline—are likely to be proven wrong once again.

ISG examines the key drivers of US Preeminence to determine whether they have been undermined by last year’s developments. According to ISG, they have not.

ISG asserts that US Preeminence endures, thanks to the country’s unparalleled economic, human capital, and financial market strengths, paired with a system of checks and balances and remarkable resilience.

Rationale for staying invested in US equities

The factors that underpin US Preeminence should translate into faster and more durable earnings growth for US companies relative to global peers. Because equity performance ultimately follows the path of earnings, ISG continues to support staying invested in US equities.

Where is the US vulnerable?

In their report, ISG also analyzed the real and perceived vulnerabilities of the United States, focusing on:

• Its supply chain dependence on China
• Its rising debt-to-GDP trajectory
• Potential threats to the rule of law and system of checks and balances

While reliance on China for key inputs is a genuine vulnerability, ISG notes that any effective export ban would need to be nearly global, imposing significant economic costs on China’s export-led growth model and therefore making such a ban unlikely in practice.

ISG also highlights that the US remains far from reaching unsustainable debt-to-GDP levels and that the rule of law and system of checks and balances continue to function effectively.

Bubble questions 

ISG notes that any discussion of market bubbles is complicated by the absence of a widely accepted definition of the term “bubble” that can be applied to all asset classes.

A common working definition of a bubble is a sustained divergence between asset prices and underlying fundamentals. By this measure, ISG does not believe public US equities are in a bubble, as earnings remain the primary driver of returns.

For example, all of last year’s 24% total return in the S&P 500 Technology Sector was driven by earnings and dividends, as P/E ratios actually compressed. In contrast, exuberant valuations—not fundamentals—drove 80% of the technology sector’s staggering 94% gain total return in the last year of the dot-com bubble.

That said, ISG believes there may be a bubble in pockets of AI, including expectations of what generative AI can deliver to consumers and enterprises and the valuations implied by recent fundraising rounds of some private AI companies.

Risks to the outlook

ISG continually assesses the risks to its outlook. Three variants of those risks are discussed below:

Economic risks: ISG has lowered its one-year recession probability to 25%. This stands above the 13% unconditional odds of recession since 1980, reflecting lingering risks from a still soft labor market. While this probability is elevated relative to history, it remains far from a base case.

Geopolitical risks: Investors continue to face a long list of geopolitical risks that can send jitters through financial markets. The key question is whether these risks could derail the US or global economies; ISG believes most will be contained and unlikely to alter their economic or market outlook. The only serious risk to their view would be a significant deterioration in US-China relations.

Financial market drawdown risks: ISG’s view to stay invested in US equities does not preclude occasional market pullbacks, which can happen at any time. Declines of 5%–10% reflect typical volatility rather than a reason to underweight stocks. While elevated valuations mean there’s an 80%+ chance of a 10% pullback in any calendar year, the probability that such a decline persists through year end is only about 20%, indicating most pullbacks recover. As we have seen in recent years, those pullbacks can also occur after the market has first rallied significantly.

Looking ahead: expectations for the US economy

According to ISG, the US is expected to grow at 2.5% in 2026, above its estimated trend growth of 2.0%. On monetary policy, ISG expects the Federal Reserve to lower rates by an additional 50 basis points this year.

You can read more of Goldman Sachs Wealth Management Investment Strategy Group’s 2026 Outlook here.