US Economy Expected to Avoid Recession
Australian asset manager Betashares has released an optimistic outlook for 2026, arguing that the United States will remain the primary engine of global growth. In its latest strategy paper, the firm projects that the US economy will continue expanding at a moderate pace despite policy volatility, geopolitical tensions, and elevated fiscal deficits.
The research team, led by chief investment officer Louis Crous and chief economist David Bassanese, contends that recession risks remain contained. Although 2025 was marked by trade disruptions and sharp swings in investor sentiment, economic momentum proved stronger than many anticipated. According to Betashares, the combination of fiscal support and private-sector investment—particularly in artificial intelligence—will help sustain growth into 2026.
Federal Reserve Likely to Cut Rates Further
Betashares expects the Federal Reserve to ease monetary policy further if labor market weakness intensifies. Inflation in developed markets has moderated significantly from its post-pandemic peaks, providing policymakers with greater flexibility. If unemployment edges higher, rate cuts could cushion demand without reigniting price pressures.
Lower interest rates would likely provide tailwinds for equities and other risk assets. Historically, easing cycles have boosted investor appetite, particularly when growth remains positive. Betashares argues that the Fed’s policy path will be one of the most influential variables shaping global asset performance in the coming year.
Fiscal Support Provides Powerful Tailwind
One of the central pillars of Betashares’ bullish thesis is fiscal stimulus stemming from the One Big Beautiful Bill Act (OBBBA). The legislation is projected to deliver roughly $100 billion in aggregate tax refunds during the first half of 2026, raising disposable income for American households. Increased consumer spending could offset the drag from tariffs and external shocks.
On the corporate side, generous tax incentives embedded in the bill have already begun stimulating capital expenditure. Forward-looking investment indicators suggest businesses are expanding capacity, particularly in technology and infrastructure. While public debt levels remain elevated, Betashares views fiscal stimulus as a near-term growth accelerator.
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AI Investment Remains a Growth Engine
Artificial intelligence capital expenditure has become a defining feature of the current economic cycle. Investments in data centers, fiber networks, hyperscale cloud platforms, and advanced semiconductors contributed significantly to US GDP growth in 2025. Betashares describes AI spending as “rocket fuel” for economic activity.
Although the contribution from AI investment may moderate slightly in 2026, it is still expected to remain substantial. Private-sector enthusiasm for automation, machine learning, and digital infrastructure continues to drive large-scale capital allocation. This structural transformation may enhance productivity over time, further supporting earnings growth.
Geopolitics and Trade Still Pose Risks
Despite its constructive outlook, Betashares acknowledges that geopolitical tensions could become more pronounced in 2026. Escalating competition between the US and China, strategic shifts in defense spending, and volatility in energy markets remain potential flashpoints. Trade policy, particularly tariffs, continues to influence corporate supply chains and pricing strategies.
However, the firm notes that markets demonstrated resilience throughout 2025, even amid sharp policy uncertainty. According to Betashares, geopolitical shocks often produce temporary volatility but do not necessarily derail economic expansion unless accompanied by systemic financial stress.
US Dollar Seen as Key Swing Factor
Currency movements may significantly influence global returns. Betashares forecasts a weaker US dollar in 2026 as interest rate differentials narrow. Historically, prolonged dollar cycles can overshoot in both directions, and a sustained depreciation could reshape capital flows.
For Australian investors holding unhedged global assets, currency effects can materially alter performance. A weaker dollar might enhance returns from emerging markets and ex-US developed equities, while dampening gains from US-listed stocks when translated into Australian dollars.
Global Equities Positioned for Gains
Betashares projects that major indices, including the S&P 500 and Australia’s ASX 200, will finish 2026 at higher levels. The firm favors developed markets outside the US and select emerging markets, citing valuation advantages and currency tailwinds. Although US equities remain supported by robust earnings, the relative appeal of international markets has increased.
Australian equities, in particular, are viewed positively due to strong commodity demand and solid earnings expectations among small- and mid-cap companies. However, elevated price-to-earnings ratios suggest that further gains will depend on earnings growth rather than multiple expansion.
Commodities and Critical Sectors
A bullish outlook for commodities underpins part of Betashares’ optimism regarding Australian markets. Global demand for critical minerals—used in renewable energy, defense, and AI hardware—continues to rise. This trend may provide structural support for resource-heavy equity markets.
At the same time, investors are increasingly evaluating sector-specific exposure. Companies with durable earnings growth and pricing power may outperform in an environment characterized by moderate inflation and shifting geopolitical alliances.
Cross-Asset Dynamics Grow More Complex
Betashares warns that cross-asset correlations could become more unpredictable in 2026. Interactions between bond yields, equity valuations, currency fluctuations, and commodity prices are likely to intensify. Investors may need to navigate a landscape where traditional diversification assumptions are periodically challenged.
The US dollar, in particular, stands out as a variable capable of amplifying or offsetting gains across asset classes. A meaningful currency shift could reshape portfolio returns more dramatically than incremental earnings surprises.
Outlook: Resilience With Caution
In summary, Betashares envisions a year of continued global expansion anchored by US strength. While risks persist—including elevated debt levels and geopolitical competition—the combination of fiscal stimulus, AI-driven investment, and potential monetary easing provides a constructive backdrop.
The central message of the outlook is one of guarded optimism. The global economy has proven resilient in the face of shocks, and 2026 may extend that trend. For investors, the challenge will be balancing opportunity with vigilance in an increasingly interconnected financial environment.
