- As the year winds down, finance pros are scanning the horizon for signals of what 2026 may hold.
- Apollo chief economist Torsten Sløk sees five risks to markets and the economy.
- He thinks the US economy will likely reaccelerate, potentially stoking fresh inflation.
'Tis the season for year-ahead outlooks on Wall Street as 2025 winds down, and Apollo Global Management's top economist is eyeing a handful of key risks to the outlook for markets and the economy.
Torsten Sløk, chief economist at Apollo Global Capital, sees five primary market risks for 2026 that he thinks investors should be focused on.
Sløk laid out his team's top five upside and downside scenarios in a December 4 note. Here's what he's watching for.
- The US economy resumes upward momentum. Sløk has said recently that he thinks economic growth is likely to pick up again in 2026, as risks from the trade war are fading and the One Big Beautiful Bill Act (OBBBA) is likely to boost demand.
The risk in this scenario is that stronger economic growth creates new inflationary pressures. Prices resuming their climb would be a problem for markets, as investors' bullish thesis revolves around the Fed continuing to cut rates, which it would be less willing to do if inflation spikes again. - A global manufacturing upswing drives more growth. Sløk thinks the rest of the world will see renewed growth in 2026, too. He added that the global economy will likely benefit as manufacturing increases and nations continue investing in their industrial bases.
"The global industrial renaissance boosts global growth with more and more countries focusing on homeshoring advanced manufacturing capacity, investing in infrastructure, energy, defense and supply chains," he predicted. - The new Fed chief politicizes monetary policy. Rate cuts have been at the heart of market outlooks all year, with arguments over whether the Fed should keep cutting or remain cautious to avoid aggravating inflation. However, markets have mostly been united in their disdain for the administration's meddling in monetary policy. Trump's prior attempts to influence Chairman Jerome Powell have been met with swift sell-offs in stocks and bonds.
However, Sløk sees a significant risk that the new appointee to run the central bank—most likely top White House economist Kevin Hassett—will lower interest rates "purely for political reasons," a decision that could cause inflation to surge even higher and spark a need for more aggressive rate cuts later on, making the outlook for stocks much less bullish. - The AI bubble could burst. The question of whether there is an AI bubble and, if so, when it will burst, has been hotly debated in 2025.
Sløk sees a risk that AI excitement is overblown, and that the bubble will burst in 2026. If that happens, he believes it will spark a significant market correction for Magnificent 7 stocks and lead to a decrease in capex spending among Big Tech leaders. - Fixed-income supply could surge. Sløk predicts a potential wave of new borrowing, resulting in a flood of bond issuance from governments and companies in 2026. The debt markets have experienced significant growth in recent years as companies borrow heavily to fund AI ambitions, and governments continue their trend of heavy deficit spending.
A wave of new debt could push interest rates higher as the supply of bonds overwhelms markets, putting new pressure not just on stock and credit markets but on the broader economy.
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