Analysts at UBS have concluded that the United States is entering 2026 with growth that is increasingly concentrated in a small set of drivers, while sizable portions of national output remain weak or are contracting.
In a research note, UBS strategists Jonathan Pingle and Alan Detmeister pointed to a marked reliance on investment in artificial intelligence as the primary engine of economic expansion through 2028. That spending has accelerated recently amid strong interest in practical applications of the developing technology, the analysts said.
However, UBS cautioned that the bulk of AI expenditure is concentrated within mega-cap technology companies. Those firms now face mounting pressure to deliver returns on their large capital outlays, the analysts added.
The broader equity market, UBS observed, has also been supported disproportionately by spending from upper-income households. The analysts framed this pattern as evidence of an increasingly K-shaped recovery: a post-pandemic rebound that favors wealthier households and corporations, while lower-wage workers contend with elevated living costs.
UBS further noted that trade policy actions tied to President Donald Trump, notably broad tariff measures, have applied downward pressure to real incomes.
Despite these concentration risks, UBS acknowledged signs of resilience in the U.S. economy. Labor market indicators show low levels of hiring but also only modest levels of firing, and inflation has stabilized even though it remains above the Federal Reserve's 2% objective.
The analysts also highlighted fiscal policy as a stabilizing element. They said last year’s signature budget legislation is expected to set a floor under economic expansion, in part through an anticipated spike in tax refunds that should provide a near-term boost to activity.
Against that backdrop, UBS expects the Federal Reserve to leave policy rates unchanged at its upcoming meeting this week. The note said the Fed, which cut borrowing costs several times last year to support employment, is likely to reduce rates twice in 2026, bringing the federal funds target range to 3% to 3.25%.
Context and implications
- AI investment concentrated in mega-cap tech firms is a key growth driver but presents concentration risk for markets and corporate earnings.
- Household spending gains are uneven, with upper-income consumption underpinning market performance while lower-wage households face persistent cost pressures.
- Fiscal measures from last year are expected to offer temporary support through increased tax refunds, while monetary policy is expected to remain on hold in the near term before cuts in 2026.