2026 Global Market Outlook: Minds, machines, and market shifts
What’s ahead for markets in 2026
Balancing AI winners with broader opportunities and enduring risks
Balancing AI winners with broader opportunities and enduring risks
AI (artificial intelligence) is powering measurable change—and this will continue in 2026. But rapid capital deployment has led to stretched valuations in AI sectors, raising concerns about speculative bubbles and sustainability. Investors must balance excitement with disciplined analysis and risk management.
Meanwhile, the world continues to grapple with non-AI forces. Inflation remains stubborn in many developed economies, growth trajectories are diverging and geopolitical uncertainty—from trade tensions to the war in Ukraine—is adding further complexity to the global outlook.
Navigating this environment will require balancing exposure to enduring AI leaders with emerging opportunities in cyclical and international markets—while remaining vigilant to persistent macro risks. The age of speculation is giving way to real-world results, but investors must be mindful that old challenges—valuation, inflation, and geopolitical uncertainty—remain firmly in play.
GMO 2026 Summary Video
2026 Global Market Outlook - Summary
We are facing a rapidly evolving investment landscape shaped by the impact of AI, expansionary fiscal policies, and shifting geopolitics.
In the US, AI-driven investment and government stimulus are reigniting growth. However, with upside risks to inflation, the Fed faces a delicate balancing act. In Europe, as tariff-related front-loading fades, manufacturing may weaken - with the European Central Bank likely to ease policy. Japan faces rising inflation, though fiscal measures should support growth. Emerging markets have managed inflation and debt and shown tariff resilience. While the backdrop is favorable, trade policy remains a risk.
Equity markets are broadening, both within AI-related sectors and beyond. AI enters a new phase with clear signs of monetization. Hardware and hyperscalers will still lead the way, but the evolution from digital AI, like software, to physical AI infrastructure is unlocking opportunities across materials, energy, and industrials. International and small-cap equities are increasingly appealing, supported by fiscal stimulus and improving cyclical conditions.
In fixed income, we expect higher yields and steeper curves reflecting ambitious fiscal agendas. High yield bonds and bank loans offer compelling income, but credit selection is key. Inflation-protected bonds and select emerging markets provide tactical opportunities.
Private markets are being revitalized. Stable rates and high demand for capital—especially for AI infrastructure—are fueling a wave of dealmaking and bespoke credit solutions. While fundamentals are robust, idiosyncratic risks must be tightly managed.
2026 will require agility. The age of speculation is giving way to real-world results, but old challenges—valuation, inflation, and geopolitics —remain. Navigating this new era calls for adaptability, a global lens, and a focus on both innovation and resilience.
- Economic Outlook
- Artificial Intelligence
- Equity Outlook
- Fixed Income Outlook
- Private Markets
- China Outlook
- Asset Allocation
2026 Global economic outlook
The U.S. economy is shaking off the 2025 growth scare, but the eurozone may lag as tariff front‑loading weighs on manufacturing.
The U.S. economy is set to rebound in 2026, driven by AI spending and fiscal expansion, while Europe may lag due to early tariffs draining manufacturing demand. Emerging markets have inflation and debt under control, but tariffs remain a risk. Central banks' policy paths will diverge, with easing likely in the UK and eurozone, and tightening in Japan.
As of November 14, 2025
For illustrative purposes only. Actual future outcomes may differ materially from forward-looking statements.
Source: T. Rowe Price.
2026 Artificial intelligence outlook
AI is poised to be the biggest productivity driver since electricity, but soaring capex and the growing use of debt finance are fueling demands for clear monetization strategies.
AI’s story is shifting from possibility to profitability. Investment and innovation are booming, but bubble concerns are growing amid rising valuations and speculative activity in some areas of the market. Investors need to focus not only on visionary technology, but also on execution, financial discipline and clear paths to monetization.
Beyond tech—AI's transformative potential across sectors
Capital expenditure1 building across the sectors and the AI ecosystem.
Source: T. Rowe Price. For illustrative purposes only.
1 Capex (capital expenditure) refers to a company’s spending in long-term assets such as property, technology, or equipment.
2026 Equity outlook
Equity market leadership is broadening as AI gains spread, while fiscal stimulus and reindustrialization are driving opportunities beyond U.S. tech.
While AI continues to be a transformative force, we anticipate broader market participation in 2026. Within AI, the focus is shifting from digital to physical infrastructure. At the same time, fiscal stimulus and deregulation are creating opportunities in different sectors and across the globe. It is becoming clearer that the equity market’s “good ponds” are no longer confined to U.S. tech.
Net fiscal impulse from One Big Beautiful Bill Act estimated in FY 2026
Billions of USD vs. current policy
As of September 2, 2025.
Sources: Wolfe Research Portfolio Strategy, Wolfe Research DC Policy, and Bloomberg.
“Fiscal impulse” refers to the impact of government fiscal policy on the economy. TCJA = Tax Cuts and Jobs Act; SALT = state and local tax; IRA = Inflation Reduction Act; FY = fiscal year.
Actual outcomes may differ materially from estimates. Estimates are subject to change.
2026 Fixed income outlook
We anticipate there will be selective opportunities in credit, but expansionary fiscal policy will drive longer‑maturity government bond yields higher.
Despite tight spreads, there will still be credit opportunities in 2026—however, selectivity will be crucial. Sub-investment grade bonds and bank loans offer attractive yields versus equities, while expansionary fiscal policy is likely to drive government bond yields higher. Inflation-protected bonds in the U.S., and parts of Europe and Japan appear attractive, while opportunities also exist in select emerging market rates.
4.11%
10-year U.S. Treasury yield as of November 10, 20251
2.67%
10-year German bund yield as of November 10, 20251
6.78%
Yield to worst of the U.S. high yield market2
Past performance is not a guarantee or a reliable indicator of future results.
1 Bloomberg Finance L.P. Yield to maturity is the total return anticipated on a bond held to maturity assuming all the securities are held to maturity.
2 As of October 31, 2025. The Yield of the High Yield market is represented by the Bloomberg US HY 2% Issuer Capped Bond Index. Yield to worst is a measure of the lowest possible yield on a bond whose contract includes provisions that would allow the issuer to redeem the securities before they mature. Source: Bloomberg Finance L.P.
2026 Private market outlook
Stabilising interest rates, lower market volatility and demand from AI‑related projects are helping to end the drought in key deal markets, driving renewed growth in private equity and credit.
Private markets are set for growth in 2026 as stabilising rates and rising AI-driven capital needs revive the IPO and M&A markets. Private equity exits are increasing, and demand for private credit—especially for tech infrastructure—is strong. Opportunities span lending, distressed, and bespoke solutions, with fundamentals robust despite some idiosyncratic risks.
2026 China outlook
Domestic consumption remains a core pillar of China’s structural growth story. We expect policy will continue to favor productivity and innovation.
Contrary to expectations at the start of the year, China’s stock market outperformed the U.S. and the rest of the world in 2025.We expect a stable/ improving macroeconomic backdrop for China in 2026. Valuations are supportive, while earnings visibility is improving.
2026 Asset allocation outlook
We favor stocks over bonds as we expect the two-speed economy to avoid recession, and non-U.S. currency exposure as a way to benefit from likely U.S. dollar weakness.
The U.S. economy is set for further growth, but stretched valuations complicate tactical asset allocation. We favor stocks over bonds given inflation risk, with international and small‑cap stocks best positioned. High yield offers a lower‑risk way, relative to equity, to benefit from a strong economy, and we prefer unhedged exposure to non‑U.S. currencies given the weakening dollar.
| Asset Class | Underweight | Neutral | Overweight |
|---|---|---|---|
| Equities | - |  |
- |
| Bonds |  |
- | - |
| Cash | - | - |  |
As of October 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward-looking statements made.
| Style | Underweight | Neutral | Overweight |
|---|---|---|---|
| U.S. | |
- | - |
| Global Ex-U.S. | - | - | |
| Europe | - | - | |
| Japan | - | |
- |
| Emerging Markets | - | - | |
| U.S. Growth vs. Value | - | |
- |
| Global ex‑U.S. Growth vs. Value | |
- | - |
| U.S. Small‑ vs. Large‑Cap | - | - | |
| Global ex‑U.S. Small‑ vs. Large‑Cap | - | - | |
| Real Assets Equities | - | - | |
As of October 31, 2025.
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward‑looking statements made.
The asset classes across the equity and fixed income markets shown are represented in our multi‑asset portfolios. Certain style and market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
| Sector | Underweight | Neutral | Overweight |
|---|---|---|---|
| U.S. Investment Grade (IG) | |
- | - |
| Developed Ex-U.S. IG (Hedged) | - | - | |
| U.S. Treasury Long | |
- | - |
| Inflation Linked | - | - | |
| Global High Yield | - | - | |
| Floating Rate Loans | - | |
- |
| Emerging Market Dollar Sovereigns | - | |
- |
| EM Local Currency | - | - | |
As of October 31, 2025
For informational purposes only. This material is not intended to be investment advice or a recommendation to take any particular investment action. Actual future outcomes may differ materially from any forward-looking statements made.
The asset classes across the equity and fixed income markets shown are represented in our multi‑asset portfolios. Certain style and market capitalization asset classes are represented as pairwise decisions as part of our tactical asset allocation framework.
Investment Solutions
China Evolution Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of Chinese companies and may have significant exposure to smaller capitalisation companies.
Diversified Income Bond Fund
Actively managed and invests mainly in a diversified portfolio of debt securities of all types from issuers around the world, including emerging markets.
Global Focused Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares of companies that have the potential for above average and sustainable rates of earnings growth. The companies may be anywhere in the world, including emerging markets.
Multi-Asset Global Income Fund
Seeks to provide income and long term capital appreciation through investment in a portfolio of income generating global securities.
U.S. All-Cap Opportunities Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares or related securities issued by companies in the United States of America.
U.S. Large Cap Growth Equity Fund
Actively managed and invests mainly in a diversified portfolio of shares from large capitalisation companies in the United States that have the potential for above-average and sustainable rates of earnings growth.
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