Ajay Rajadhyaksha is global chair of research at Barclays.

Last weekend, President Trump warned of possible 100 per cent tariffs on Canada, one of its closest trading partners. Congress is looking at a government shutdown after the shocking events in Minneapolis; a partial one at least seems on the cards. Airlines started cancelling Middle East flights at the end of last week, on worries of an imminent US-Iran conflict. China accused a top general of selling nuclear secrets to the US. The dollar is enduring its worst week in years, amid investor whispers that the “Sell America” trade might be coming back.

And that was just the weekend.

In sum, there’s been a massive amount of headlines for investors to absorb in 2026. And it has almost all been bad. So, of course, stocks spent the first two days of the week surging to yet another record high. (They did come off a bit on Thursday morning, but on Microsoft results, not on bad headlines. And they remain near all-time highs.)  

Does nothing matter to financial markets? Is this irrational exuberance run amok?

Not really. Markets are mostly rational in ignoring most of the headlines slushing around. And they have a template to follow from last year. It seems a lifetime ago, but we have seen this movie before.

From February to May 2025, the headlines were near constant and almost uniformly bad. First was the prospect of heavy tariffs on Mexico and Canada — an idea that initially prompted disbelief, given how closely supply chains are linked in all three countries. Then came the “Liberation Day” tariffs, followed by the ratcheting up of US-China tariffs for several rounds, until there was a virtual trade embargo between the world’s largest two economies. Markets plunged, economists sharply marked down growth forecasts, and doom and gloom abounded.

Of course, equities rallied famously starting from late April; the S&P 500 and global equities returned 17 and 21 per cent in 2025. But this wasn’t just animal spirits coming back in the equity markets. The economy surged. The US grew at 3.8 per cent quarter-on-quarter in Q2 after contracting slightly in Q1. Bears who tried to explain away Q2 as just a bounceback from Q1 were then faced with the economy growing at 4.3 per cent in Q3.

And at last glance, the Atlanta Fed’s GDP tracker is running over 5 per cent for the fourth quarter.

While that will probably be revised lower, the US economy clearly grew well above 2 per cent last year. Despite virtually no job growth. A moribund housing market. And a global trade war.

The rest of the world also did better than expected. In theory, Europe’s extremely open and trade-intensive economies are very exposed to trade disruption. But the EU continued to grow at trend last year. ECB board member Isabel Schnabel repeatedly called the economy resilient and said trend growth would pick up this year. China ran its largest — ever trade surplus (over a trillion dollars!) despite higher tariffs, and last week hit its 5 per cent GDP growth target.

When equities bounced off the April lows — and then kept going and going and going — it therefore wasn’t on thin air. They were responding to surprisingly strong growth and the highest S&P 500 profitability in decades.

Naysayers will say that the world — and especially the US — got lucky that the AI trade kicked in to offset the trade war. And yes, AI capex was a big support to business investment and growth in 2025.

So what? AI capex spending in 2026 will be 30-40 per cent above last year’s levels, based on virtually every indicator we look at. And despite the breathless fixation on Oracle CDS, the vast majority of the listed hyperscalers look like they’re going to go hammer and tongs on AI spending for the next 12 months — at least. Everyone you talk to in this space insists that demand for compute and inference will comfortably outstrip supply for the next several quarters.

Maybe all this AI capex eventually ends up in blood, sweat and tears. Maybe AI adoption never takes off enough, the amount of spending cannot be economically justified, and the Luddites breathe a sigh of relief. Colour me sceptical. And even if this scenario plays out, it’s not happening anytime soon. There is no dotcom-like crash coming this year, where demand suddenly collapses in the face of ever-higher supply.  

There are other tailwinds too. US households will receive an extra $110bn in tax refunds in the next few months. Reduced withholdings will put another $100bn into household pockets. A number of high profile companies — mainly in services industries like tech and finance — are reporting that AI is already adding to both the top- and bottom- line. With consumers getting more cash, and AI productivity starting to kick in, the US could easily grow at a faster pace in 2026.

President Trump clearly wants to run the economy hot going into midterms. The administration is trying to lower mortgage rates, is pushing the Fed to ease more quickly, and is deregulating the financial sector. And finally, the US remains fiscally expansive, with annual deficits approaching $2tn again.

Equity markets won’t ignore these dynamics, regardless of the headlines. 

It’s fair to say that constant geopolitical noise come with the risk of unintended consequences that might eventually matter. A miscalculation in US-Iran hostilities could lead to oil prices skyrocketing and hurt the global economy, for example.

But the bar is high. Last year we saw the continuation of wars in the Middle East and eastern Europe, Iran-Israel tit-for-tat sorties, and US strikes on Iran. Oil still struggled to rally, and 2026 shouldn’t be any different. Last but not least, the US government has proven very sensitive to market conditions — repeatedly pulling back from policies (including on the tariff front) if markets get too upset.

There are obviously things to worry about this year. The lower end of the US economy — the so-called lower arm of the K — is struggling. This leaves the US too dependent on all things AI as the main engine of growth. Moreover, debt profiles are deteriorating across the West. The rally in gold and silver is signalling investor unease with too-expansive monetary and fiscal policy. The Fed has overshot its inflation target for almost four years, and is still easing. Long-term Japanese yields recently hit a record high, and the BoJ’s policy rate is still just 75 bps. While policymakers still have plenty of levers to pull (including reducing issuance in longer rates), markets will keep a nervous eye on any prospective bond rebellion.

But that’s different from worrying over every headline that passes the tape. Investors have learnt from 2025 to sift noise from signal. And the first three weeks of January, as hectic as they have been, amount mostly to noise, at least for the stock market.