2026 Global Market Outlook: Minds, machines, and market shifts

“The Angle” Music

Cold OPEN “Trees don’t grow to the sky. There’s going to be a moment where this market concentration starts to unwind. ”

Podcast intro: Ritu Vohora  

Welcome to “The Angle from T. Rowe Price”, a podcast for curious investors. Just a reminder that outside of the U.S., this podcast is for investment professionals only. 

I’m Ritu Vohora, a Global Capital Markets Investment Specialist, here at T. Rowe Price Associates. In this special edition of “The Angle”, we focus on our 2026 Global Market Outlook, as we look to cut through the market noise and uncover the real story behind today’s investing landscape.

I was recently joined by a powerhouse panel of T. Rowe Price experts—including Sébastien Page, Ken Orchard, and David Giroux—to help understand the seismic changes shaping global markets. From the explosive impact of AI and the rise of the Magnificent Seven, to the risks and opportunities hidden in fiscal policy, inflation, and sector rotation.

We hope you enjoy listening to this fascinating conversation, as our experts go beyond the headlines, to tell us what 2026 could potentially look like for financial markets.

Ritu Vohora  

Hello, and thank you for joining us for the T. Rowe Price 2026 Global Market Outlook, “Minds, Machines, and Market Shifts.”

In 2025, AI moved to a new phase. It’s no longer just a buzzword, but it’s driving real-world gains, fueling U.S. growth, and reshaping investment opportunities globally. But this transformation brings new questions. Are we on the edge of an AI-driven productivity revolution, or are expensive valuations a warning sign that we’re in a bubble?

So, David, maybe I can come to you on this one. Are we seeing the setup for an AI bubble, if we want to use that term, or is all this capex sustainable value creation?

David Giroux

I would say it’s a very difficult question. Now, I’d also say, anyone who tells you they know exactly how this is going to play in the next five years; there’s a number of questions out there that are still unanswerable from my perspective. The scaling laws. Do we, do we, if we put more capex against training? If we put more capex, increasing levels of capex, does that generate a return that’s justified by the incremental capex when it comes to training models? We just don’t know that yet. Early evidence says maybe, but maybe not. So, we’re still a little bit early on that.

The second question is really around models. Do models commoditize? If models commoditize, that puts a lot of downward pressure on the training side of the market, not on the inference side of the market. So those are two unanswerable questions. But what I will say, we are seeing clear evidence of monetization, whether it be on ad targeting, customer service, marketing, legal—very, very high, kind of—and coding, very high IRRs. You’re talking to companies today who are saying we’re a 5% top-line growth company. We used to grow our census by 2% to 3%, and now we think the next five years we don’t have to grow our census at all. Big companies like Amazon are saying with double-digit top-line growth, we’re not going to have to add any new people over the next five years. That is a big change. And I would also say, as you talk to the cloud companies who are the epicenter of this, the Amazons, the Googles of the world, what they would tell you is, today, demand is outstripping supply. So that doesn’t necessarily have the makings of a bubble.

Ritu Vohora

Thank you for that, David. And I guess the sustainability of all that capex in terms of turning it into profitability really matters, to your point, around ROIs. How are you navigating this next phase of the evolution in AI?

David Giroux

So what you really want to do here is you want to think about where is the best risk/reward? Because we don’t have a crystal ball with what the future looks like, so you want to play companies that have a business that even if AI were to fall off, or really slow down dramatically, that they have a core business that actually will continue to grow at a healthy rates.

Ritu Vohora

Now, another key concern, Sébastien, is around market concentration. You know, these are fantastic companies, they’ve had fantastic earnings. But they make up a big component of the S&P 500. And I know this makes it much more difficult for active investors. So, from your point of view, and potentially the Asset Allocation Committee, how are you thinking about your allocation to the U.S. and AI more generally?

Sébastien Page

Well, Ritu, concentration is not just high, it’s at an all-time high. But the question that we get repeatedly and that David addressed, in part—are we in a bubble? Look, there are signs of speculations. Let me just summarize how this ends up looking from the top down. Stocks are up 35% in five months. The price/earnings ratio’s at 23. The price-to-sales ratio is higher than it was during the dot-com bubble. The price-to-book ratio is higher than it was during the dot-com bubble. The dividend yield’s at 1.2%, it’s close to where it was during the bubble. Market concentration, which we just said is at an all-time high.

But I want to go back, though, to fundamentals. Fundamentals are positive. Aswath Damodaran is an academic, and he’s a very credible voice on top-down valuation. And he was on CNBC a few weeks ago, and he refused to use the B-word. He said, I refuse to use the bubble word. And a very straightforward justification: Fundamentals remain quite strong. But also, not all stocks are trading near historical high valuations. This is kind of obvious, but counterintuitively, if you look at the MSCI All Country World Index equal weight, so just like the average stock in the world, it’s trading a price/earnings ratio of about 15 on 12-month forward. Its long-run average over 30 years is 14. So, this speaks to small- and mid-cap valuations. S&P Equal Weighted is actually near its 10-year average valuation. So small-caps, health care stocks, international value stocks, they’re all trading near historical averages. So, we do have a barbell in the valuation. Trees don’t grow to the sky. There’s going to be a moment where this market concentration starts to unwind.

Ritu Vohora

So, Ken, coming to you now, we’ve talked about it from an equity perspective, but as I mentioned, a lot of these companies are now starting to tap into debt markets, private markets. How are you thinking about this? Can debt markets support this insatiable demand for capital?

Ken Orchard

Yeah, the fixed income markets are struggling to work out what this means. There has been a very large and rapid increase in issuance from AI-related companies just in the past six months or so. But, you know, many of these companies are starting from very low debt loads. So, a company like Meta, it had $30+ billion in debt at the start of the year, and now if you add in everything that they’ve issued across various platforms, it’s maybe $80-something. So, it’s a pretty big increase in percentage terms, but it’s not really that big for a company the size of Meta. In general, though, across all of TMT, we haven’t seen a big impact on corporate spreads. Next year, the market is forecasting that investment-grade issuance is going to go up by about 50%. And most of that is going to be driven by AI-related capex. It’s TMT, it’s utilities, etc.

Ritu Vohora

So, we’ve talked about the impact of AI on the economy, but also we have cross-currents around policy, right? We have tariffs, we’ve got fiscal policy from the One [Big] Beautiful Bill. The Fed is in a difficult place where they cut rates. We’ve got a new Fed chair next year. They’ve got a difficult tightrope to walk. How are you thinking about inflation, growth, and monetary policy? It’s a loaded question.

Sébastien Page

Yeah, you know, I really enjoy talking about macro, but every time I do, I think in the back of my head about something I learned from David Giroux, which is the way the macro feels right now is not the way the macro’s going to feel six months from now. Let me give you the bearish frame, because right now, no one’s really being bearish. You don’t hear a lot of bears in the financial media, but interestingly, there are at least four historically powerful indicators of recession that are flashing red. I’m going to give you the four indicators if you want to be bearish, but then I’m going to tell you why—I hate to say, this time is different, but why in the immediate future they might not drive the economy off a recession.

Number one: unemployment is up by 90 basis points. This is a recession indicator. There’s no time in history where unemployment accelerated like that, that didn’t end in a recession. Traditional recession indicator.

Number two: The yield curve was inverted, it’s disinverting. We know that is, typically, has not been recently, but an indicator of recession. If you use traditional economics. In fact, it’s so good, people like to say that the yield curve predicted 12 out of the last 10 recessions, right? A couple misfires.

Number three traditional recession indicator: Manufacturing is in a recession. Manufacturing is contracting. PMIs right now are reading at about 49, they’ve been persistently below 50 for three and a half years. That typically, even though manufacturing’s only, like, 10% of the economy, it’s typically a leading indicator of recessions.

Number four indicator of recession, historically: housing activity. Housing activity is basically at a 10-year low and historically would be an indicator of recession.

Now, let me give you the bullish side of the macro side, which is where I stand right now, to be clear. The Fed is easing 100 basis points, potentially, by the end of next year. There’s stimulative fiscal spending. We’re running pedal to the metal on fiscal. 7% of deficits. Deregulation, M&A are finally picking up. We thought that would pick up earlier, but are finally picking up. And, look, the higher-wage consumer remains strong. The top 10% of wage earners represent about 50% of aggregate spending, and those consumers own stocks, typically, and so there’s a wealth effect. Unemployment, even though it’s accelerating. It’s at 4.3%. The long-run average is 5.7%. So we’re actually at a fully employed economy, which is good for consumption. And then AI capex, of course, it’s accelerating. It’s accelerating. As we record this, there’s a Wall Street Journal article over the weekend where a private credit manager says, when you start talking about a trillion-dollar investment in two years, at that point, you kind of stop counting, right? So this is where we are in terms of AI spending, not slowing down. Corporate earnings growth remains strong, 10%, 12%, Q1, Q2, Q3 again. And interestingly, at least retail surveys show that investors are not that bullish, which is typically a contrarian indicator.

So, I’ll just end with this on the macro. The Atlanta Fed GDPNow, which is a Nowcast, tries to take all the data as it gets published, and we know we don’t have all the data right now because we’re unwinding the shutdown. But the GDP Nowcast is at 4% growth for this quarter, and it’s actually trending up, not down. OK, so let’s say it’s 4% growth, I don’t know, but let’s say we get 4% growth for the next 6 to 12 months, and we know inflation is actually picking up, it’s running at 3.6% last three months. Let’s say it’s 3.5% inflation. That is 7.5% nominal growth. That is higher than any annual nominal growth number printed between the great financial crisis and COVID. So, the macro’s looking just fine. And I’m again reminded of what David taught me, which is that the way the macro feels now is not the way the macro’s going to feel later. But now, it feels fine. These positive macro trends and fundamentals, you know, they could fail to meet expectations. That’s the problem.

Ritu Vohora

So, Ken, how are you thinking about this? I know you have been positioned short duration. How are you thinking about your fixed income allocation?

Ken Orchard

Yeah, so our concern, looking into next year, is that we’re expecting growth to be quite resilient, we’re expecting inflation to be relatively high, and the Fed could get cold feet. It may think that it doesn’t want to cut as much as the market has been pricing, and we’ve started to see some of that play out over the last five weeks. The Fed said at the last press conference that they weren’t sure if they were going to cut, and we’ve heard a lot of people come out and say the same thing. So that’s our concern is that, there’s just a lot of cuts priced into the curve over the next 18 months or so. The market is assuming that inflation is going to come down, that the neutral rate in the U.S. is 3%, and therefore the Fed is going to gradually migrate down to that. But there are obstacles in the way. There are reasons to expect inflation to remain somewhat sticky.

Ritu Vohora

You mentioned there inflation continues to be a risk. I know it’s been moderating, but there are upsides now, whether it’s from tariffs or AI with all this spending. Sébastien, how are you thinking about inflation protection from the fiscal side, but also inflation in your multi-asset portfolios?

Sébastien Page:

There are a few factors that point towards sustained inflation pressures. Let me give you a few arguments for why inflation risk might be to the upside. And I look at this as a risk management question. I don’t think we’re going back to 8%–9% inflation, but I just look at the symmetry of the risk relative to expectations. In my mind is that the risk is more to the upside than the downside. Wages are still growing at 4%, so that’s hardly consistent with 2% inflation targeting. There’s a housing shortage of 5 to 7 million homes in the U.S. That can create stickiness in shelter inflation. Commodities always remain unpredictable. As an asset allocator, I’ve said many times, commodities are perhaps the hardest asset class to predict, and now they’re driven by AI’s energy demand as well.

Tariffs, we think, our economist, Blerina Uruçi, thinks maybe it will add as much as 100 basis points, at least temporarily, to CPI. CPI is running at 3.6% for the last two or three months of data we have. And then, add on top of all of this, Ken, on top of everything I just said, add all-time high financial markets, all-time tight spreads, and what is the Fed doing? Cutting rates. The Fed is easing, right? So, that’s where we are in an environment where you probably want to hedge upside surprises and inflation. You can do it in many ways. I know our audience is global, so linkers, we call them linkers, right, or TIPS. Shorting your duration. There are many ways you can short duration. Being long credit is an indirect way of shorting duration. The other thing we like to do in our asset allocation portfolio is to overweight now, our real asset strategy. These are stocks that react really well to positive inflation shocks. It’s a diversified portfolio. You have metals and mining, energy, real estate, inflation-sensitive equities. This is great because it keeps you in the market in an area that’s pretty, in my mind, undervalued, so you get the equity tailwind over time, but also a nice response that you can expect from these inflation shocks.

Ritu Vohora

So a lot of those value sectors you talked about, again, the case for broadening or diversification. So now I want to come back to you, David. Your strategy is, I’d say, countercyclical. You tend to lean in when the market’s panicking, and I think you did that this year, right, during Liberation Day when the markets were panicking and people were selling, you were actually leaning in and adding to your equity position. So for our investors, it’s very difficult when things are going wrong to feel comfortable making such a bold decision, and it doesn’t feel good. So how can investors navigate the noise? What should they be focusing on?

David Giroux

Well, let me just say, if I had one message to investors, always, is when the market goes down, the forward returns, 12 months, 36 months, are actually higher. Actually, when markets feel really good and the macro feels really good, that’s usually not a great time to be taking a lot of risk. What I would tell people is, we talk a lot about markets. We talk a lot about the stock market, small-caps, mid-caps, large-caps, but the reality is we don’t invest in markets. I don’t invest in macro. I invest in the 60 best equities from a risk/reward that we can possibly find in the marketplace, right? And I think a lot of other investors at T. Rowe follow the same strategy, right. So, there are parts of the market today that are extremely overvalued. But at the same time, there’s a number of stocks in the marketplace that all have very attractive risk/rewards. You know, parts of health care, parts of utilities. Things that are out of favor today, but have very, very attractive business models, whether that be parts of the software that have kind of been left by the wayside, even though they have very, very good fundamentals. Again, we’ve talked a lot about markets, but again, we’re not investing in 500 companies in my strategy. We’re investing in the 60 best equities, we’re making big bets on those stocks.

Ritu Vohora

Sébastien, I want to come to you now from a question we’ve had from the audience. We’ve started to see a broadening of performance, you know, within the U.S., whether it’s from tech into areas like utilities and health care, but also beyond that, internationally. Now, many investors are struggling over where and how much to allocate outside of the U.S. The market rally can continue. They don’t want to take their chips off the table and it continues to rally, because in fact, I was looking at the data. So, if you looked at the tech bubble, the NASDAQ’s four-year return, 50% came in the last year. So, if you’re on the dance floor, you don’t want to leave too soon. So what should investors do?

Sébastien Page

Earnings growth is converging, even in the U.S. The spread a couple quarters ago between the Mag 7 and the 493 was about 20% difference in earnings growth, and now it’s down to 7% or 8%. And we’re looking at a similar trend between non-U.S. stocks and U.S. stocks. A couple months ago, before an Asset Allocation Committee, I sent a note to an analyst, and I asked for a dashboard of non-U.S. stocks compared to U.S. stocks. It was the MSCI All-Country World Index, including emerging markets, ex the U.S. versus the Russell 3000. So, Ritu, I start looking at the numbers. And something looks off. Outside the U.S., the earnings growth numbers are 2% higher than in the U.S. The ROE’s 5% higher. The margins are 5% higher outside the U.S. So I don’t yell at analysts ever, right? But I’m getting ready to ask that analyst politely why the data is wrong, and it turns out the data was correct. However, it was compiled based on median numbers. So, to get a median return on equity, for example, for stocks outside the U.S., you would rank them by their return on equity, and then you would go to the middle of that ranking. This speaks to opportunities in small- and mid-caps, and ultimately in value in stocks outside the U.S. with better fundamentals than their counterparts in the U.S., and cheaper valuation and converging earnings growth. So, the Asset Allocation Committee, for example, has been long international value stocks, and we maintain that position.

However, before I end my answer, I am not calling for the end of U.S. exceptionalism. I think the U.S. technology innovation is awesome and is going to continue, but from a 6- to 12-month ahead perspective. We are holding U.S. stocks, but at a lower proportion than we normally would relative to non-U.S. stocks.

Ritu Vohora

So, keeping our chips on the table, but just diversifying a bit on the edges. So coming to you, Ken, now, when I think about emerging markets, they’ve been in a pretty good place. We’ve actually seen more tariff resilience than maybe people thought, but also from an inflation and debt perspective, unlike the West it seems to be under control.

Ken Orchard

Yes, in many countries.

Ritu Vohora

Are you seeing opportunities in fixed income within emerging markets, particularly when we’re thinking about the hunt for yield? Is that where maybe the contrarian opportunity is?

Ken Orchard

Emerging markets have done very well this year, and we have participated in that performance in our fixed income strategies. Short term, we have turned a little bit cautious, just given the extent to which they have moved and the level of bullishness that is there. Longer term, structurally, I’m bullish on emerging markets, and I’ll tell you why.

This macroeconomic regime that we’re in currently is very good for emerging markets. We have very easy financial conditions. Most of the developed market central banks are cutting rates. We’ve got fiscal stimulus. Energy prices are relatively low, and yet commodity prices in many of the commodities that emerging markets produce are stable to even higher. And positioning is still generally underweight, although we have seen, you know, many people on the margin move a little bit into emerging markets. We’ve yet to see any wholesale asset allocation shifts into emerging markets like we did, say, back in 2005 and 2006 or in 2010, so people are still generally underweight. And that means there is the potential for a virtuous circle in order to form, where you have more capital flowing into emerging markets, which then causes their currencies to appreciate, and then that improves the fundamentals, and then that causes more capital to flow into emerging markets, and so you can have these multiyear cycles where emerging markets do very well, and I am optimistic that that is going to develop.

Exactly where in emerging markets we’re investing? We like the barbell approach, and so we’ve been more focused on, first of all, some of those very high-quality countries that you mentioned that actually have better macroeconomic policies than we’re seeing in the developed countries. Then on the other side of the barbell are what we often call the frontier markets. So, these are places like Egypt or Nigeria, Turkey. Those countries have also done very well this year. Their currencies are appreciated. They’ve got very high local interest rates. And so, if we buy a little bit of those and we leave it unhedged, then you can get incredibly attractive returns. Egyptian T-bills in the past year returned around 30 percentage points.

Ritu Vohora

Wow. Who said fixed income was boring.

Ken Orchard

Yeah, so compare that to equities. So, we think if we combine those two together, of each side of the barbell, you’ve got the low risk and the high risk, well then, you’ve got a very attractive return package.

Ritu Vohora

OK, so back to that diversification point, even in fixed income, go global. We’re almost at time,looking where we are, but I have one question from the audience on the dollar. The dollar’s been on a slide, I think it’s down 8% year-to-date, and I think a lot of investors, when you look at your returns, they’re flattered by a weaker dollar, depending where you are. But do we think that’s structural or cyclical? Maybe Ken, I can stick with you on that one.

Ken Orchard

So, I think the moves this year are cyclical. As we talked about, we came into this year with these great hopes around U.S. exceptionalism. And in reality, the U.S. growth was good, but it didn’t quite I think live up to the hype. And as a result, the Fed’s cutting rates, interest rate differentials between the U.S. and the rest of the world declined, and the U.S. dollar went from a very high valuation point to now, it’s still high, but not quite as high.

Longer term, it’s difficult. Today we are actually, nervous, U.S. dollar bulls. We are long U.S. dollars, we think that the setup into next year for the dollar is actually quite nice, given that acceleration in growth and a Fed that is a bit more on the fence. However, longer term, the U.S. dollar is still very expensive. And you know that is being held up by the fact that there’s a lot of foreign capital that’s flowing into the U.S. The U.S. has a big current account deficit; it has to be financed every year. It’s about 1% of global GDP, a little bit over that, that needs to flow into the U.S. every year just to finance the U.S. current account deficit. I think foreigners are happy to do that as long as U.S. equity returns are high and U.S. interest rates are high. But at some point in time, that could shift, and then the dollar has a lot of room to decline.

Ritu Vohora

Okay great. We’ve covered a lot of ground, so as we come to a close, I just want to wrap up. I think, broadly, we were quite constructive on the macro. I think a lot of the risks we were worried about at the beginning of the year seemed to have abated, at least for now. But as we look ahead to the next, call it six to 12 months, what is the risk the market is not pricing? What keeps you up at night? David, maybe I can start with you.

David Giroux

You know, what I would say is 99% of what we do is micro, and 1% is macro, so I’m not spending; worried at night, about debt policy or AI bubbles. I’m very, very focused on those 60 companies and what’s going on in their fundamentals, and that’s what we’re really focused on. What is the growth rate? What does the model look like? What does the IRR look like? I think again, we put way too much weight as investors on macro. I think, again, as Sébastien said earlier in the discussion, the macro mind has not been great over the last three or four years, and yet equity returns have been wonderful, because the micro has been so powerful. So, again, there’s nothing I would highlight that I’m spending any time on, on a macro perspective. I’m very, very focused on the micro.

Ritu Vohora

That’s great, and I think that’s very reassuring for investors who are trying to navigate a constant barrage of data that keeps changing almost daily. So coming to you now in Baltimore here, what are your thoughts on the biggest risk and biggest opportunities?

Sébastien Page

What was keeping me up at night? Our head of fixed income, Arif Husain, said recently, ‘no, we’re not in a bubble. We’re in a balloon.’ And I think his point was you can inflate the balloon more than a bubble. Maybe it’s semantics. But what’s keeping me up at night is the asymmetry in market opportunities, given where we are, where it’s starting to feel balloonish or bubblish. I think of how we talked about inflation, again, asymmetry. You want to be short duration, prepared for this asymmetry and the risk, but through portfolio construction, where you’re going to be doing just okay, you’re going to be doing okay if inflation actually comes down. So I think of asymmetry a lot. I want to participate, we want to participate. So I like, for example, hedged equity strategies, where you get a portion of the upside, but you’re actually hedging the downside. From an asset allocation perspective, I think those strategies are interesting. So, I think this will be my takeaway: 2026, position for asymmetry.

Ritu Vohora

That’s a great way to end on. Ken?

Ken Orchard

So I agree with David in terms of macro events. That’s not something that we typically play. There’s not very much that’s really worrying me right now. Perhaps I’m worried a little bit if the Fed doesn’t cut in December, January, that that could be taken out of the market, because the market’s expecting it, but ultimately, don’t think it really matters that much. What we are thinking about for next year is we want to have lots of short duration credit, so things like loans, as we talked about, but also short duration securitized credit, we think, is attractive. We want to be outside of the U.S., we want to hold things like emerging markets, and we also want to be long inflation. So, TIPS in the U.S., but also inflation linkers in Europe, Japan. Those are still priced at a fairly low rate of inflation around the world, and so they do offer some attractive upside. If inflation just stays at the current levels, well then they will do well.

Ritu Vohora

Great, thank you. Well, thank you all. We’ve covered a lot of ground. Hopefully for our audience, that was insightful. But if I could summarize, I think the outlook is constructive, particularly on the macro, but cautious. Risk assets should do well, whether it’s in equity, but we should be playing the asymmetry, so really thinking about that barbell approach. But I think, importantly, we have to be humble. We can’t forecast markets, so preparation is key and we shouldn’t be complacent. Neutral equity stance, but really thinking about those AI winners that David talked about, whether it’s the hyperscalers and those with sustainable earnings growth, in areas like utilities and health care, as we start to see that broadening. And within fixed income, short duration, and opportunities to pick up yield, particularly in areas like emerging markets. So, thank you all.

Thank you for listening. We look forward to your company on future episodes. You can find more information about our 2026 Global Market Outlook and other topics on our website. Please rate and subscribe wherever you get your podcasts.   

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