Joshua Gennet

Building on a strong 2025, our outlook for 2026 places capital markets on the front foot, supported by favourable economic conditions for growth. We expect the US economy to continue outperforming other major regions, alongside strong performance across most advanced economies, supported by higher government spending and rising AI investment.

As a result, the global outlook for equities in 2026 is constructive, with U.S. equities standing out as particularly attractive. Leading companies, and particularly the “Magnificent Seven”, are well positioned to translate AI and other technological advances into profits. Structural advantages such as scale, competitive moats, loyal user bases, and financial strength position them to perform strongly in year ahead.

In the UK, we expect growth to slow but remain positive. Softening business investment, subdued household spending, and easing labour demand may restrain wages and increase unemployment, helping inflation move lower. This strengthens the case for multiple Bank of England rate cuts, though the UK represents less than 4% of global equity markets, limiting its impact on the broader investment outlook.

Elsewhere, we expect corporate bonds to remain relatively stable, supported by strong company finances and steady economic growth. However, increased borrowing to fund AI investments may put mild upward pressure on yields, limiting returns compared with equities. High-quality corporate bonds are expected to offer moderate returns above equivalent government bonds, while we remain slightly cautious on developed market high-yield debt.

Interest rate paths are likely to differ across regions. In the US, robust growth may limit Fed cuts, whereas weaker growth and low inflation in the UK could lead to larger-than-expected rate reductions, making gilts relatively attractive. Japan has moved short-term rates out of negative territory, with further tightening likely due to inflation and a weaker yen.

Whilst our outlook is largely positive, we still see several key risks: a weakening US labour market that could reduce household spending and slow US growth, slower AI adoption or lower monetisation of AI investments that may derail the boom, and a worsening of geopolitical relations. Market concentration is notable, with the “Magnificent Seven” comprising more than a third of the US market, but historically, such concentration has not reliably predicted weaker returns or higher volatility.

Overall, global markets enter 2026 with supportive conditions, led by strong US growth, ongoing AI investment, and major tech companies driving earnings. Whilst there are of course potential risks, we believe remaining invested and maintaining a diversified portfolio continues to be the most sensible approach to navigating uncertainty while participating in long-term market growth.

‍