Tariff uncertainty, elevated AI valuations and shifting global risks are shaping how investors prepare for 2026. A handful of technology giants continue to dominate market performance, but concerns are rising about concentrated valuations, geopolitical developments and potential changes to U.S. trade policy.
BNN Bloomberg spoke with Philip Straehl, CIO for the Americas at Morningstar Investment Management, about the risks he sees heading into 2026 and where investors may find opportunities beyond the largest tech names.
Key Takeaways
- A pending U.S. Supreme Court decision on tariff rules could introduce fresh volatility early in 2026.
- AI-linked stocks face rising valuation risks and shifting sentiment after an extended rally.
- A pullback in spending plans by major hyperscalers could pressure broader tech performance.
- International markets, including Brazil and the U.K., offer more attractive valuations than U.S. megacap stocks.
- South Africa stands out as a compelling early-stage opportunity tied to commodity-cycle dynamics.
Read the full transcript below:
ROGER: No one can predict what 2026 will bring, but some themes have emerged consistently in 2025, such as tariff tensions and high valuations in the AI sector making investors nervous. Morningstar has prepared a report with an outlook for 2026. Let’s bring in one of the authors, Philip Straehl. He is chief investment officer covering the Americas for Morningstar Investment Management. And Philip, thanks very much for joining us.
PHILIP: Thanks for having me, Roger. It’s good to be with you.
ROGER: Let’s start off with the trade tensions. What kind of a factor do you see that being in 2026?
PHILIP: Yeah, I think it’s settled in terms of some of the frameworks that have been put in place. But I think one of the things that is still an uncertainty at this point is the potential decision by the Supreme Court in the United States, potentially in December or January, with an announcement around their decision as to whether some parts of the tariff framework will be shut down. I think that will create some volatility. So, as we look into 2026, we don’t expect, you know, the April-level volatility, but certainly still uncertainty around the tariffs in 2026.
ROGER: What kind of a twist would a ruling have that some of those tariffs were unenforceable? They’d have to pay money back. That could make for a bit of a nightmare for businesses.
PHILIP: Yeah, I would say actually the biggest trading partners, our expectation would be that those tariffs will just be shifted in terms of the legal statute. So there’s probably not a huge impact. Some of the smaller trading partners, it might actually be a relief, but it will just create uncertainty in the market, where markets will be wondering what exactly, which sectors might be impacted. And by and large, we would not expect the same type of downside risk as we’ve seen in April 2025.
ROGER: And geopolitically, I mean, we’re hearing possible talk of a peace deal between Russia and Ukraine — no guarantees, of course, with everything the way it’s unfolded there — but there is talk of that. What kind of an impact would something like that have? Are there any other geopolitical aspects that you’re keeping an eye on?
PHILIP: Yeah, the Ukraine–Russia deal obviously would be, you know, significant in terms of the impacts from a humanitarian standpoint. We’d say energy prices, oil markets would likely be most impacted by that. We’ve seen some downward pressure on oil, as you’ve pointed out this morning, and so it’s mainly on the energy side, we would think, as far as, you know, the market implications — but obviously a very important deal as well. The second element will be defence companies, which have done very well this year, especially in Europe. And so a potential deal there would put potential downside pressure on defence stocks, if that were to come to fruition.
ROGER: And of course, the other thing that everybody’s talking about: AI. What’s next for it? We had some pretty good earnings for the most part. Still some nervous investors out there. Is that going to change, do you think?
PHILIP: AI has been the dominant theme for the past two and a half years. Really, off the low in April, that was what reassured markets, and a lot of these AI stocks — Nvidia did very well off that low in April — but we think that there’s probably been a level of frothiness and very elevated expectations that have been baked into some of those valuations. And we’ve seen a bit of a pullback in these stocks in recent weeks, on the back of even beating earnings. And so at this point, it’s probably more of a sentiment shift. But going into 2026, the big question is whether those companies will stick to the capex plans that they’ve announced so far this year.
ROGER: And they’ve been aggressive with that. Is that what’s making most investors nervous then?
PHILIP: I think it’s part of it. I think there’s a technical element, as I mentioned, where I think the market’s gotten somewhat narrow, especially in the September–October period. And in recent weeks we’ve seen a bit of an unwind there. But if we were to see a pullback on the capex guidance by the large hyperscalers, I think that could lead to more significant downside. So our view would be for investors to try to diversify away from some of those large-cap names and find opportunities perhaps in higher-quality health-care and consumer businesses, for example.
ROGER: And yeah, health care, it’s had a nice bounce back lately. And you still think there’s some deals to be had though?
PHILIP: We think so, yeah. We think, you know, it’s underperformed the S&P 500 for the third consecutive calendar year. It’s kind of lagged the S&P by about 70 per cent over that time frame. And so we still think that there’s value. It has better earnings growth than the overall market. And we still think that there’s room for some of that regulatory overhang to ultimately boost some of those stocks.
ROGER: And outside North America, what are some of the things you’re looking at?
PHILIP: We still like non-U.S. stocks, from our perspective — especially if you are a Canadian or U.S. investor — given valuations. Also from a currency perspective, we like Latin America as one of the areas, for example, in emerging markets. Brazil, for example, is trading at 11 times earnings. And that’s much more attractive than, let’s say, the S&P 500 that goes to 23 times earnings.
ROGER: And also you mentioned in some of your notes here, talking about the U.K. as well as an interest to you.
PHILIP: Yeah, the U.K. is, you know, despite its economy — there are obviously different things going on with the budget there — but there’s access to a lot of high-quality global businesses. And if you look at that market from a valuation standpoint, we can still see a lot of value in those businesses. And so given the strong rally we’ve seen in many parts of equity markets, we think the U.K. is an attractive area to be as well.
ROGER: And just one more — we’re almost out of time — but just quickly about South Africa as well. You’re calling it a hidden gem.
PHILIP: Yeah, South Africa is one of the markets that we like. And we think from a commodity-cycle standpoint, and given some of the pressures we’ve seen on the commodity side of things, that’s an area that we like. It’s an early story, and we might see some volatility there, especially if we, you know — we talked about the geopolitical dimension — but it is one of the areas that we like as well within emerging markets.
ROGER: Okay, we’re going to leave it there. But Philip, thanks very much for joining us.
PHILIP: Thank you, Roger.
ROGER: Philip Straehl. He is chief investment officer covering the Americas for Morningstar Investment Management.
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This BNN Bloomberg summary and transcript of the Nov. 24, 2025 interview with Philip Straehl are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
