Is the Global Economy Set for a 2026 Rebound?

As global markets move into 2026, investors are watching rate cuts, fiscal policy and artificial intelligence reshape the growth outlook. Nasdaq’s Michael Normyle breaks down the economic tailwinds and market dynamics that could define the next global growth cycle.

Summary – IBKR Podcasts Ep. 347

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hi everyone, this is Jeff Praissman from InteractiveBrokers.com. It’s my pleasure to welcome you back for a monthly podcast with Nasdaq’s Michael Normyle. Hey, Michael, how are you? 

Michael Normyle

Doing well, thanks. Glad to be back. 

Jeff Praissman

It’s great to have you back, and a happy belated New Year. 

Michael Normyle

Same to you. 

Jeff Praissman

We’re going to kick it off with a little bit of a look back. You guys wrote a great blog called Three Tailwinds for 2026 on your website, asec.com, and we’re going to discuss that blog—go through some questions, sort of a look back and a look forward. So I want to kick it off just looking back at 2025. Despite headlines all over the place—like tariffs, wars, and the global economy—the economy really managed a kind of slow yet steady growth. What were the key factors that helped maintain the momentum throughout the turbulence? 

Michael Normyle

Yeah, so like you said, major economies around the world generally avoided recessions in 2025, and many saw solid but not stellar economic growth despite all those headline-grabbing events. And of course, the caveat being we generally don’t have Q4 data just yet. But the big stabilizer last year, I think, was the consumer. As much as we can generalize across all these economies, demand stayed resilient even as we saw labor markets cooling across a lot of them, and that put downward pressure on wage growth. But the key thing is that even as hiring slowed, companies didn’t resort to mass layoffs. That’s especially the case in the U.S., where we’ve had this environment of slow hiring and very low firing, and so it’s kept people employed and able to keep spending. But with those labor markets softening, while inflation has stayed near target in many economies, that allowed central banks to cut rates last year, and that helped support economies as well. 

Jeff Praissman

And as we’re moving into 2026, what is shaping economists’ expectations for continued growth, and how do these differ from last year’s drivers? 

Michael Normyle

Yeah, so like I said earlier, a resilient consumer was a big factor last year. And as you mentioned, there’s this expectation for continued growth in 2026, and we think that we could see economic growth rates broadly in line with the pace of growth last year. And the difference is that some of those drivers will change from 2025 to 2026. And so in the introduction you mentioned we were talking about three tailwinds. And so those are lower rates from central banks, fiscal support—things like tax cuts—and continued AI spending. And so each of these will support economic growth, but they’ll also help corporate profitability, so they could help drive earnings. 

Jeff Praissman

Let’s start with the lower interest rates there. Like you said, they’re often cited as a major tailwind, right? Everyone—whether you’re on Wall Street or Main Street—talks about rate cuts. It affects everyone with loans, or really everything throughout people’s lives. But how are the current rate policies impacting inflation, labor markets, and access to capital for small businesses? 

Michael Normyle

Yeah, I think, well, to start with labor markets—out of those three—they’ve been cooling for a few years at this point. And in the U.S., that dates back to the Fed’s rate-hike cycle back in 2022. And at its peak, we had two job openings for every unemployed person. As the Fed hiked rates to cool demand, that ratio has since fallen below one at this point. So going from a peak of two job openings per unemployed person to now less than one job opening per unemployed person. And so in line with that reduction in labor demand, wage growth has also slowed. And now labor markets have cooled to the point that the Fed has to cut rates so that they’re no longer reducing that labor demand and to explicitly support the labor market. 

Now, we do expect these rate cuts will be able to continue because we suspect that inflation will start to slow. So you can think of inflation in two parts: core services and core goods. Core services—that’s a lot of wages and housing costs. And so, as we’ve already talked about, the wages piece has been coming down the last couple of years. Same story for housing inflation. For core goods, it’s been boosted a bit by tariff pass-through last year—not as much as a lot of people thought earlier last year. But now, if you think of the timeline where inflation is really typically measured—looking at year-over-year growth—a lot of that tariff inflation started around the spring, so we could see a peak in that tariff inflation around this spring. And so that would allow inflation to start coming down a bit. And then we’ll have both the goods and the services parts of inflation slowing, which will enable those further rate cuts. 

And one of the big beneficiaries of lower rates is smaller businesses. And here I’m talking about smaller businesses as both private small businesses, but also publicly listed small caps or even smaller companies. And that’s because they’re more reliant on floating-rate debt than mid-caps or large caps. And so as the Fed started hiking rates in 2022, the ratio of interest expense to earnings more than doubled to 48% for small caps—so nearly half of their earnings going to interest expense. But for mid-caps, it topped out below 30% and was pretty much unchanged for large caps, because they were able to lock in low fixed-rate debt early on in COVID. So with the Fed pivoting to cutting rates in the last year-plus, the interest-expense-to-earnings ratio has now started to fall for small caps. And the National Federation of Independent Businesses—they’re also known as NFIB—put out a survey of small businesses, and they’ve reported that short-term loan rates paid by small businesses have recently fallen from a high of 10.1% to 8.4%. So starting to come down, but that’s still double what it was during its COVID low, when it was as low as 4.1%. 

Jeff Praissman

And in terms of government action, Michael, how are the U.S. tax cuts and the European fiscal support broadening spending growth, and are there any ripple effects you’re seeing globally from this? 

Michael Normyle

Yeah, I mean, in the U.S., the tax cuts were put in place in mid-2025, really referencing the One Big Beautiful Bill Act. And that included corporate and personal tax cuts, which the Congressional Budget Office estimates will boost GDP growth this year by 0.9%—so a pretty significant lift to GDP there. And for businesses, a lot of the tax breaks were designed to increase business investment, or CapEx, with provisions like 100% bonus depreciation and R&D expensing. And so that’s estimated to save over $900 billion over the next 10 years for companies in the U.S. 

For consumers, the Congressional Budget Office projects that real after-tax incomes will rise about 1.5%, and the benefit will increase as you go up the income spectrum. So higher-income households will get a bigger benefit. Now, giving this bigger benefit to those higher-income households should extend the kind of K-shaped consumer dynamic we’ve seen in the last couple of years, where you have higher-income households increasing spending, but lower-income households being more cautious. Internationally, there’s some overlap in Japan, where they have a stimulus package including stimulus checks for households—kind of like we saw during COVID—along with investment support specifically for AI chips and ships. And then in Europe it’s a little bit different, where Germany, for example, is increasing defense spending, which also adds to economic support in a sense. 

And so the global ripple effect is that when the U.S. consumer stays supported and Europe adds spending, it tends to lift the baseline for global revenues, which is great for multinational firms, supply-chain demand, and exporters as well. 

Jeff Praissman

And we talked about how many people are talking about rates, but artificial intelligence—everyone, I mean, is talking about artificial intelligence. 2025 was clearly the year of AI, but it’s also revolutionizing many industries. So how is AI boosting productivity, and is there any evidence that it’s translating into higher corporate profitability? 

Michael Normyle

Yeah, so right now I think it’s definitely easier to show that AI is helping the bottom lines of companies than it is to show widespread productivity gains. So for productivity, I think that’s the long-term goal for AI, but it’s just not here yet, right? We don’t have a lot of evidence of that—especially on an economy-wide basis. For example, showing up in the actual productivity numbers that the government puts out. But from the corporate revenue perspective, there’s definitely plenty of evidence for that based on the spending from AI hyperscalers, which are the companies that are spending billions and billions of dollars to build data centers. 

So the five big ones being Alphabet, Amazon, Meta, Microsoft, and Oracle. And they’re estimated to have spent over $425 billion in CapEx last year, and it’s projected that will increase another 25% this year to nearly $550 billion. And so all of that money—that’s real money being spent on chips and computing and energy equipment and all the construction workers and all that stuff. So it’s real money that’s helping companies’ bottom lines right now. It’s just that we’re still so, so much in the early stages of AI and companies figuring out how to use it effectively, people in general figuring out how to use it effectively and get comfortable with it, that the productivity element hasn’t really shown up just yet. 

Jeff Praissman

Gotcha. And we’ve got to talk about the stock market, and it’s shown varied performance across different sectors. I mean, obviously tech and AI have been leading the way, but what other industries are leading the way? And also, how do international markets kind of compare to the U.S. right now? 

Michael Normyle

Yeah, I think the interesting thing for 2025 is that, reading the news, it really felt like 2025 for markets included was all about AI, and that’s mostly a U.S. market phenomenon, right? All the big AI—those hyperscalers I just mentioned—they’re all U.S. companies. But in terms of performance, actually many international stock markets outperformed the U.S. last year. So for example, the NASDAQ 100 had a very strong total return of 21%. Russell 2000 small caps—they were up 13%. In local-currency terms, if you look at the MSCI for Europe, that was up 21%, just like the NASDAQ 100, while the MSCI for Asia was up 27%, and for emerging markets was up 32%. But when you account for the weakening dollar, that then boosts those offshore returns in U.S. dollar terms. So the gains were all roughly 30% or higher in dollar terms for those other indexes that I mentioned—so all beating those U.S. indexes. 

Jeff Praissman

And on the other end of it, metals—gold and its quote-unquote little brother, silver—really rallied in recent months. What’s driving this trend, and how does it connect more to the broader economy or geopolitical shifts? 

Michael Normyle

Yeah, so last year Bloomberg’s precious metal index was up 80%, and that’s much bigger than any of those equity indexes that I just mentioned. And the why, I think, is at least partly a fairly classic rationale. So when central banks cut rates, holding assets like gold becomes more attractive because you’re giving up less yield elsewhere. And there’s the other driver being uncertainty, which is a factor—and there was definitely a lot of uncertainty last year. Questions around deficits, questions around geopolitical risk—those were factors. And so when people worry about fiscal sustainability or instability, then they can buy hedges like gold. So there’s definitely a piece of that. And then for silver, though, which is part of the index too, like you mentioned, that’s also benefited from the fact that it is useful in manufacturing for things like cars and tech. So that aligns with that broader theme of AI spending too. 

Jeff Praissman

And back in November, you and I did a podcast, From Wall Street to Wallets: The Tale of Two Consumers, and we talked about the K-shaped consumers that you mentioned earlier. And that’s a great podcast for our listeners to check out as well. But could you kind of sum up, for our listeners to this podcast, just what’s causing this divergence, and what does it mean for overall demand in 2026? 

Michael Normyle

I think in short, there are really two drivers of it. The first one is the wealth effect. And so that’s where higher-income households—at least in the U.S.—tend to have a higher share of equity and home ownership. And so here we have record-high stock prices, record-high home prices, and that’s made them feel wealthier. And that’s given them the confidence to keep spending. Lower-income households, they’re less likely to own stocks. They’re more likely to rent at a time when rents have gone up quite sharply in recent years. And so they haven’t had that wealth effect where increasing asset valuations have made them feel wealthier and comfortable continuing to spend. 

The second one is wage growth. And so wage growth has slowed steadily over the last few years when you look at it in aggregate, and that’s definitely true for the bottom quarter of households. But if you look at it for the top quarter of households, it was slowing for a bit coming off of that peak COVID wage growth, but actually over the last year and a half or so, it’s kind of moved sideways—so steady wage growth for that higher-income household group. So that supported their spending better than it has for households where they’ve seen wage growth continuing to slow on top of that. 

Now, when you consider that the One Big Beautiful Bill Act tax cuts, the benefit rises with income, that should be another support for higher-income spending. So I know it sounds like this means that spending in 2026 will be pretty narrowly driven, but the reality is that in the U.S., the top 10% of households do nearly half of all spending. So as long as these supports are in place, or the bulk of them, then a big chunk of U.S. spending will continue to be supported by that, and we can see spending continue to grow in 2026. 

Jeff Praissman

Gotcha. And Michael, I’m going to skip question nine because I think you’ve pretty much covered it with that answer. And switching gears here, Michael—when it comes to business profitability, are we sort of seeing a K-shaped consumer in a way with large corporations seeing earnings grow more strongly than small caps, small firms, or in certain international markets? Is there a separation there as well? I know it’s a totally different subject, but I sort of wanted to bridge those together. 

Michael Normyle

Yeah, I think when you look at the combination of lower interest rates, lower wage costs, tax cuts, and continued AI spending, that should help a lot of companies—especially smaller companies—significantly improve their profitability. If you look at analyst assessments for earnings growth this year for the Russell 2000 Small Cap Index, it’s expected to be five times what it was last year. So over 60% earnings growth is what they’re expecting this year. Now, part of that is growing off a low base, right? If you look at the NASDAQ 100, where earnings growth has been a lot stronger, it’s hard to have really strong growth indefinitely. So some of that low base is helping those small caps there. 

But it’s not just U.S. companies that are going to see these benefits. So earnings growth is expected to be solid around the world, with EMs in Asia expected to see over 15% earnings growth this year. For Europe, it trails, but still a pretty solid 13% gain. And I know I mentioned the NASDAQ 100 briefly, but it’s actually the only index expected to see earnings growth slow from 2025. But like I said, that’s partly because it saw 22% earnings growth last year. This year, it’s still looking at a very strong 17% earnings growth. 

Jeff Praissman

And are there risks—such as weaker jobs or wage growth—that investors and business leaders should be mindful of? And if so, how might these offset the tailwinds we’ve been discussing during this podcast? 

Michael Normyle

I think the key risk is the same cooling that helps inflation come down and helps rates come down. So slower wage growth and softer hiring—that can bleed into demand. So we want these rate cuts to help prevent that, essentially, because if paychecks grow more slowly or if we see unemployment rising, then you could see consumer spending growth slow down. And then within the AI space, there’s always the risk that, as with any kind of big investment push, there are going to be winners and losers. Some will overspend, some won’t monetize, and the market’s going to separate those two groups. And so I think—and that’s even something that you’ve heard the heads of these frontier labs talking about explicitly. So it might be too soon for that to play out in 2026 still, but that’s definitely a risk in the longer-term investment story when you have these huge investment pushes like we’re seeing now and have seen back with things like railroads and the internet. 

Jeff Praissman

And kind of continuing down the AI road, how do you see AI-driven productivity shaping GDP growth and the labor market over the next few years? And what should investors and businesses watch out for as this year unfolds as well? 

Michael Normyle

Yeah, so I think the AI boost to productivity—that’s the long-term bet, right? And I think I mentioned that earlier, that companies are making—and right now, again, as I said earlier, not much sign of it just yet. But 2026 also still could be an early time to see it. So we’re still in that build-out phase right now. And since you’re asking about the next few years, that’s where we could start to see it, certainly. So I think a good guide, at least for how to think about this, is what happened with the internet. Over the 10 years from the mid-1990s to the mid-2000s, the internet boosted U.S. productivity growth to 3% per year. And that’s essentially double the trend rate that we saw earlier in the 1990s. 

And so if we see a similar boost to AI—so roughly a 1.5% gain in productivity growth for 10 years—and we have a $31 trillion economy, you do that for 10 years, we’re talking over $4 trillion in growth to the size of the economy. But again, we don’t have evidence that it’s kicked in nationwide yet, so people are still exploring how to use AI and how to use it productively. So I think in terms of what to watch in 2026 is evidence that we’re moving from the infrastructure-spend portion of the AI buildup to the operational-results element, where companies might report faster times in their cycles, or lower costs, or better customer service, or whatever metric works for their company. And so see if that’s starting to pass through. And that will be, I think, the thing to watch that shows that AI is more than a market story and sort of an economic reality. 

Jeff Praissman

So the actual practical uses of AI versus just the theoretical that everyone’s getting into. 

Michael Normyle

Exactly. 

Jeff Praissman

Michael, this has been great. And for our listeners, you can find more from Michael Normyle at Nasdaq.com. Definitely check out this article by him and Phil McIntosh, Three Tailwinds for 2026, also on our website, IBKR.com. Go to Education, click on Podcasts—you can see a bunch of previously aired podcasts. All great stuff. And until next month, Michael, thank you. 

Michael Normyle

Great. Thanks.