Our perspective on the global economy and financial markets, and our views on the investment themes likely to prove consequential in the months – and years – ahead.
Investment Outlook 2026
Paul Niven
Head of Multi-Asset Solutions (EMEA)
I am delighted to present our Investment Outlook 2026. This document provides our perspective on the global economy and for financial markets and contains our views on many of the investment themes that are likely to prove consequential in the months – and years – ahead. In addition, we have updated our forward-looking capital market assumptions, covering expected returns and volatilities for 22 asset classes.
So far, 2025 has seen a number of significant developments, with the unpredictable and inconsistent policies of US president Donald Trump, along with military action in the Middle East, causing substantial volatility in financial markets. Despite this, economic fundamentals remain reasonably strong, with greater – albeit incomplete – clarity around tariff policy and related impacts. Although US inflation is expected to remain above target, Federal Reserve (Fed) rates are expected to be cut by up to 1% by the end of 2026, while the European Central Bank (ECB) has scope for another cut in interest rates.
In terms of investment themes, an important consideration is the potential end of US ‘exceptionalism’. After well over a decade of excess returns from US assets, there are tentative signs of waning appetite from investors. The US dollar has seen pronounced weakness, and we see scope for further downside, and the share of highly concentrated US equities in global market indices is at record highs. Strategically, we expect a broadening in market returns but remain mindful of the strong competitive positions of leading US companies in industries with high growth prospects.
Elsewhere, European equities have seen a good start to the year and the removal of the ‘debt brake’ in Germany, along with widespread plans to increase fiscal expenditure on defence and infrastructure, may see a better growth backdrop for the eurozone in the years ahead. However, a rising debt burden may cause challenges for the bond market, which has, thus far, remained relatively sanguine over record levels of government borrowings. Chinese policymakers are also renewing their focus on growth and there are some encouraging signs of a stabilising housing market and incremental stimulus from authorities.
There also remains the theme of the application of technological advancements, and artificial intelligence (AI). Industries are set to be transformed by AI, potentially enhancing productivity and gains to capital, and raising overall economic growth rates.
Commodities and especially catastrophe bonds (or cat bonds) continue to score well in our ‘capital market assumptions’ (CMA) model this year. Narrow spreads in corporate bond markets have reduced prospective returns and there remains little difference, in terms of prospective returns, between high grade credit and government bonds. Higher returns are expected from riskier credit instruments, such as high yield bonds, but better returns still are expected from equities. Within equity markets, rich valuations in developed markets, notably the US, suggest that attention may shift towards emerging markets, which have the advantage of lower valuations and have been out of favour with investors for much of the past decade or longer.
The outlook, as always, is uncertain and valuations in equity markets and credit spreads are high relative to history. While mindful of the risks, we are excited by the opportunities for investors. AI presents tremendous challenges to policymakers, businesses and individuals, but should also drive meaningful improvements in productivity with the adoption of new technologies likely faster than has been the case historically. We remain resolutely focused on helping our clients navigate both the risks and opportunities that will present themselves over the coming years and trust that you find our insights helpful and instructive in your strategic deliberations.
Interested in learning more?
Download the full 2026 Investment Outlook for an economic roundup from our senior economist, Anthony Willis, and a financial markets and capital market assumptions breakdown from investment strategist Jitzes Noorman.
