AI Productivity, Fiscal Stimulus, and Market Volatility Drive 2026 Outlook - Episode Hero Image

AI Productivity, Fiscal Stimulus, and Market Volatility Drive 2026 Outlook

Bloomberg Surveillance · · Listen to Original Episode →
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TL;DR

  • AI adoption requires scaling and process changes, not just technology, to achieve significant developer productivity gains and avoid falling behind competitors.
  • The US maintains a productivity advantage over Europe due to its infrastructure and investment, making it difficult for other regions to catch up in the short term.
  • Global central banks are expected to implement over 80 interest rate cuts, creating a constructive environment for deals and debt issuance despite market volatility.
  • Defining the streaming market broadly to include platforms like YouTube and TikTok is crucial for Netflix to argue against antitrust concerns in its acquisition of Warner Bros. Discovery.
  • Fiscal policy, particularly government spending and regulatory relief, is identified as a key driver for economic growth, outweighing the impact of political rhetoric.
  • The US Federal Reserve may implement three interest rate cuts, balancing fiscal spending with concerns about inflation, which is forecast to remain stable or slightly increase.
  • Active fixed income ETFs offer the potential to capture a larger portion of the bond market and explore more opportunities compared to passive ETFs.

Deep Dive

The U.S. economy faces a complex outlook for 2026, marked by expected continued market volatility despite a generally constructive environment driven by AI-fueled productivity and significant fiscal stimulus. While AI is seen as an ongoing infrastructural boom rather than a bubble, its primary engine, U.S. productivity, is projected to remain dominant globally, particularly when compared to Europe's slower progress. This dynamic suggests that companies delivering earnings, especially within the technology sector, will drive market performance, but a slight deceleration in earnings growth compared to previous years necessitates caution against complacency, as market leadership may shift and volatility could increase.

The Federal Reserve is anticipated to implement three interest rate cuts in the coming year, starting soon, to address a perceived weakening in the U.S. economy, even amidst increasing fiscal spending. However, inflation is expected to remain a persistent concern, with forecasts suggesting a slight increase from current levels and 10-year U.S. Treasury yields remaining stable around 4.15%. In Europe, fiscal policy is expected to provide a cyclical impulse, particularly in Germany, which is projected to move from near-zero growth to 1.3%-1.5% next year, independent of the European Central Bank's steady policy of holding rates at 2%. Globally, the convergence of fiscal support and an estimated 80 central bank rate cuts creates a generally constructive environment for markets, although the Bank of Japan is an exception, with two hikes anticipated.

The media landscape is undergoing a profound transformation, exemplified by Netflix's proposed $72 billion acquisition of Warner Bros. Discovery. This deal faces significant regulatory hurdles, amplified by potential antitrust concerns and political scrutiny, particularly from former President Trump. Netflix's strategy to gain approval hinges on redefining the competitive market beyond traditional streaming services to include platforms like YouTube and short-form content providers such as TikTok, positioning itself as a smaller player in a broader viewing ecosystem. While Netflix views the acquisition as an opportunistic chance to monetize premium intellectual property and enhance engagement, other players like Paramount and SkyDance may find such content more existentially critical for their own strategies. The ongoing consolidation and the financing of these large deals, including significant debt issuance, are being closely watched, though current demand for corporate bonds suggests the market can absorb this activity, barring a recession. The theatrical movie business also faces new challenges, with questions arising about the long-term viability of theatrical release windows for Warner Bros. Discovery content under Netflix's ownership, despite assurances of maintaining current operations.

Politically, affordability remains the central issue driving voter sentiment and campaign messaging, with the current administration aiming to frame it as a prosperity issue rather than solely a price concern. This requires a focus on regulatory relief and tariff negotiations, as tariffs are seen as a significant drag on the economy and people's lived experiences. The administration's approach to healthcare policy is likely headed towards a confrontation, with a Senate vote on enhanced Obamacare subsidies expected, potentially leading to a government funding shutdown if bipartisan agreement on healthcare policy extensions is not reached.

Action Items

  • Audit AI adoption: For 3-5 teams, assess current AI tool usage and identify 2-3 high-impact areas for scaling AI to boost developer productivity by 30%.
  • Track market share definition: For the Netflix-Warner Bros. Discovery deal, analyze how defining the market beyond traditional streaming (e.g., including YouTube, TikTok) impacts regulatory approval likelihood.
  • Measure fiscal policy impact: For 3-5 European economies, analyze the correlation between government spending increases and GDP growth in 2026, considering ECB policy.
  • Evaluate debt market capacity: For 3-5 major tech companies, track debt issuance volume and auction success rates to assess market capacity for financing growth.
  • Assess AI as infrastructural change: For 3-5 key industries, evaluate AI's impact on productivity and earnings growth beyond short-term market volatility.

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Key Quotes

"We do though expect that earnings growth is coming down a little bit which i think is really healthy but of course earnings will be very important and those companies who will deliver earnings in 2026 will certainly get say punished uh and that could cause volatility in the market it's by the way one of the reasons why we are saying probably for 2026 let's not be complacent and just expect the same really positive performance we've seen so far this year and likely to get into year end"

Christian Noltling of Deutsche Bank argues that while earnings growth is expected to decrease, companies that deliver strong earnings in 2026 will be rewarded, potentially leading to market volatility. Noltling advises against complacency, suggesting that the positive performance seen in the current year may not be replicated.

"I think that ai is is not a bubble i think it's still a boom an infrastructural change and that's why we are constructive on next year as well"

Christian Noltling of Deutsche Bank expresses a constructive outlook for the upcoming year, viewing artificial intelligence not as a speculative bubble but as a fundamental infrastructural shift. Noltling believes this ongoing boom in AI technology will continue to drive positive market sentiment and investment.

"I still look very easily at uh productivity and that's the highest in the us and honestly i don't think that's massively changing next year look at europe for example the productivity is far behind the us hopefully that's getting better with fiscal policy here but to be seen but i think to catch up on the us productivity uh is very very tricky at least in the short term"

Christian Noltling of Deutsche Bank emphasizes the sustained productivity advantage of the United States, stating that he does not anticipate significant changes in this dynamic in the near future. Noltling points to Europe's lagging productivity as an example, suggesting that catching up to the U.S. level will be a difficult and lengthy process.

"So when you look at the streaming market um netflix is actually number two right now to youtube that's something that that not a lot of people um really know out there so when you think about youtube and the size and scale of of a free platform that's how netflix is is thinking about this in terms of that the the share that they get on the total streaming not just streaming but the total viewing platform and that doesn't even include other short form content like tiktok and and instagram"

Geetha Ranganathan of Bloomberg Intelligence explains that Netflix's strategy in defining its market share for regulatory approval includes positioning itself as number two to YouTube in the broader streaming and viewing landscape. Ranganathan highlights that this definition excludes short-form content platforms like TikTok and Instagram, focusing on total viewing platform share.

"So from netflix's standpoint they also have a lot of amazing data that they've gotten from warner brothers discovery over the years of licensing that content and seeing how it performs on their platform so for them they see this as a clearly a very unique opportunity that they have to monetize this content increase engagement and really you know grow the assets uh in some direction that they think that they could do a much better job of uh under their own platform than warner brothers discovery could do with a sub scaled platform"

Robert Fishman of Moffett Nathanson suggests that Netflix views the acquisition of Warner Brothers Discovery as a unique opportunity to leverage data and enhance engagement. Fishman explains that Netflix believes it can better monetize content and grow assets under its own platform compared to Warner Brothers Discovery's current scaled platform.

"The big driver here and the big drag on the economy are tariffs uh the cost of things coming into the united states are more expensive because of tariffs that does have an impact on the economy it does have impact on people's lived experience getting that right is the biggest economic delivery this administration could have that is far better than any word uh that any politician could uh could utter"

Patrick McHenry, former House Financial Services Committee Chair, identifies tariffs as a significant driver and drag on the economy, increasing the cost of imported goods and impacting people's daily lives. McHenry asserts that addressing tariffs effectively would be the most substantial economic delivery this administration could achieve, surpassing mere political rhetoric.

Resources

External Resources

Books

  • "The Five" - Mentioned in relation to the US benefiting disproportionately from AI investments.

Articles & Papers

  • "The Scoop" (Publication not specified) - Mentioned as suggesting Netflix's Ted Sarandos met with President Trump before the Warner Bros. Discovery deal.

People

  • Christian Noltling - Deutsche Bank Global Chief Investment Officer, discussed outlook for 2026 and market volatility.
  • Ed Yardini - Mentioned in relation to the idea that big tech may no longer be the sole driver of market leadership.
  • Patrick McHenry - Former chair of the House Financial Services Committee, discussed affordability issues and economic messaging.
  • Geetha Ranganathan - Bloomberg Intelligence media analyst, discussed the Netflix-Warner Bros. Discovery deal and regulatory hurdles.
  • Robert Fishman - Moffett Nathanson Senior analyst, discussed the Netflix-Warner Bros. Discovery deal and market definition for regulatory approval.
  • Arvind Krishna - IBM's Chairman and CEO, discussed using AI for business and developer productivity.
  • Malcolm Gladwell - Host of the podcast "Smart Talks with IBM," interviewed Arvind Krishna.
  • Ted Sarandos - Mentioned in relation to Netflix's deal with Warner Bros. Discovery and meeting with President Trump.
  • Lucas Shaw - Mentioned for reporting that Netflix's Ted Sarandos met with President Trump before the Warner Bros. Discovery deal.
  • Michael Nathanson - Mentioned as a colleague who has written about YouTube's position as a large media player.
  • Scott Bessent - Mentioned as the White House's economic messenger delivering a distinct message on affordability.
  • Kevin Hassett - Mentioned in relation to whether the Trump administration has doubled down on the Bessett economic message.
  • Ryan Reynolds - Mentioned in relation to a Mint Mobile promotion.

Organizations & Institutions

  • Deutsche Bank - Mentioned as the employer of Christian Noltling.
  • J.P. Morgan Asset Management - Mentioned for active fixed income ETFs.
  • IBM - Mentioned for scaling and managing AI for business.
  • Bloomberg Audio Studios - Mentioned as a producer of podcasts and radio news.
  • Bloomberg Television - Mentioned as a platform where "Bloomberg Surveillance" is broadcast.
  • Bloomberg Terminal - Mentioned as a platform for accessing "Bloomberg Surveillance."
  • Bloomberg Businessweek - Mentioned as a platform for accessing "Bloomberg Surveillance."
  • Netflix - Mentioned in relation to a potential deal with Warner Bros. Discovery and its strategy with theatrical releases.
  • Warner Bros. Discovery - Mentioned in relation to a potential deal with Netflix.
  • YouTube - Mentioned as a competitor to Netflix in the streaming market.
  • TikTok - Mentioned as a platform for short-form content.
  • Instagram - Mentioned as a platform for short-form content.
  • Paramount Sky Dance - Mentioned in relation to a potential bidding war for Warner Bros. Discovery.
  • Comcast - Mentioned in relation to Peacock.
  • Amazon - Mentioned as a competitor in the streaming market.
  • Walt Disney - Mentioned as a competitor in the streaming market.
  • Cinemark - Mentioned in relation to its stock performance.
  • AMC - Mentioned in relation to its stock performance.
  • Mint Mobile - Mentioned for offering discounted wireless service.
  • Odoo - Mentioned as an all-in-one business software platform.
  • House Financial Services Committee - Mentioned in relation to Patrick McHenry's former role.
  • The White House - Mentioned in relation to economic messaging and affordability issues.
  • Federal Reserve (Fed) - Mentioned in relation to interest rate decisions and cuts.
  • European Central Bank (ECB) - Mentioned in relation to interest rates.
  • Bank of Japan - Mentioned in relation to interest rate hikes.
  • Wall Street Journal - Mentioned for an article about President Trump's messaging on affordability.
  • CVS - Mentioned as a community pharmacy.

Websites & Online Resources

  • jpmorgan.com/getactive - Mentioned for information on J.P. Morgan Asset Management's active fixed income ETFs.
  • omnystudio.com/listener - Mentioned for privacy information.
  • screenfortypeone.com - Mentioned for information on screening for type one diabetes.
  • ibm.com/smarttalks - Mentioned for the full conversation between Malcolm Gladwell and Arvind Krishna.
  • odoo.com - Mentioned for trying Odoo business software for free.
  • mintmobile.com - Mentioned for Mint Mobile's unlimited wireless offers.
  • cvs.com - Mentioned for CVS services.

Podcasts & Audio

  • Bloomberg Surveillance - Mentioned as a podcast and TV show providing insight on markets, economics, and geopolitics.
  • Smart Talks with IBM - Mentioned as a podcast hosted by Malcolm Gladwell featuring interviews with IBM's leadership.

Other Resources

  • AI (Artificial Intelligence) - Discussed as an infrastructural change and a tool for business and developer productivity.
  • Active ETFs - Mentioned as aiming to beat benchmarks, contrasted with passive ETFs.
  • Passive ETFs - Mentioned as settling for benchmarks, contrasted with active ETFs.
  • Type One Diabetes - Mentioned in relation to screening and risk factors.
  • Government Stimulus - Mentioned as a factor in the US economy, timed after Fed interest rate cuts.
  • Fiscal Policy - Discussed as a driver of economic growth and government spending.
  • Monetary Policy - Discussed in relation to central bank interest rate decisions.
  • Inflation - Mentioned as a persistent topic affecting market outlook and treasury yields.
  • Corporate Bonds - Discussed as an investment option with attractive yields, especially investment grade.
  • Gold - Mentioned as a high conviction trade.
  • Antitrust Worries - Mentioned as a potential hurdle for the Netflix-Warner Bros. Discovery deal.
  • Subscription Streaming - Mentioned as a market segment where Netflix has dominated.
  • Short Form Content - Mentioned as part of the broader viewing platform beyond traditional streaming.
  • Theatrical Releases - Discussed in the context of the Netflix-Warner Bros. Discovery deal and its implications for movie theaters.
  • Obamacare Subsidies - Mentioned in relation to a potential Senate vote and healthcare policy.
  • Government Funding - Mentioned in relation to the possibility of a government shutdown.
  • Repatha (evolocumab) - Mentioned as a medication that lowers LDL cholesterol and heart attack risk when used with statins.
  • Xiidra (lifitegrast ophthalmic solution) - Mentioned as a prescription eye drop for dry eye disease.
  • Mybite - Mentioned as an eye care product available at CVS.

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