2026 Midyear Market Outlook: Five shifts reshaping markets
What’s next for markets in 2026
Competing forces drive a broader, more complex opportunity set
Competing forces drive a broader, more complex opportunity set
Markets have been anything but stable in the first half of 2026. A sequence of geopolitically driven shocks has collided with surging artificial intelligence (AI) investment, robust corporate earnings, and solid U.S. economic growth. Risk assets have remained relatively strong amid these crosscurrents. But the danger for investors is mistaking resilience for calm.
Many of the themes we identified at the start of the year have broadly played out: AI-driven growth, broader equity market performance, and continued strength in credit, even with upward pressures on bond yields. Macro forces are now driving a new and more dispersed opportunity set as the AI trade moves into physical sectors and geopolitical fissures reshape the global economy. The market regime is changing.
2026 Midyear Market Outlook - Summary
The first half of 2026 has reminded investors that markets can be resilient even when the world feels anything but stable. Geopolitical conflict, energy shocks, sticky inflation, and shifting supply chains have tested markets so far this year. Yet strong U.S. growth, healthy corporate earnings, and ongoing investment in artificial intelligence have helped support risk assets.
But beneath that resilience, a new market regime is beginning to take shape.
The global economy is becoming more fragmented, physical, and selective. Governments and companies are increasingly prioritizing energy security, domestic manufacturing, and supply chain diversification over efficiency. That shift may keep inflation higher and more volatile than investors have been used to.
Credit markets remain resilient, but disciplined credit selection is essential. With persistent inflation, we see opportunity in inflation-linked securities as portfolio hedges, alongside real assets.
AI is evolving from a purely digital story into a real-world infrastructure boom. Investment is spreading beyond large technology platforms into areas such as power, connectivity, and equipment. That broadening opportunity set is beginning to reshape market leadership into who owns the economic bottlenecks.
Meanwhile, the dominance of mega-cap technology stocks may be starting to fade as rising capital spending pressures free cash flow. Leadership is widening across sectors and regions, creating a more favorable backdrop for active investing and selective stock picking. Small-caps, value-oriented sectors, and select non-U.S. opportunities could benefit as dispersion increases and benchmark concentration weakens.
For investors and advisors, the message is clear: macro matters again.
Success may depend less on benchmark exposure and more on identifying companies and sectors positioned to thrive in markets defined by fragmentation, infrastructure investment, and durable earnings growth.
- Scorecard
- Geopolitical Outlook
- Inflation Outlook
- Energy Outlook
- AI Outlook
- Market Leadership Outlook
- Asset Allocation
Revisiting our 2026 expectations
We were right that equity market leadership would broaden beyond mega-cap tech, but war-driven shocks have challenged our thesis on non-U.S. equities.
We were right that equity market leadership would broaden beyond mega-cap tech, but war-driven shocks have challenged our thesis on non-U.S. equities.
Nearly halfway through 2026, we looked back at the themes from our Global Market Outlook published last November. Many of the key trends we identified heading into this year, such as continued credit market resilience and broader equity market leadership, played out largely as anticipated.
Regional trends proved to be more mixed, however. While non-U.S. equities periodically outperformed, the bullish case for non-U.S. stock markets has weakened in the wake of the energy supply shock.
| Expectation at start of 2026 | How we did | On reflection |
|---|---|---|
| Fiscal expansion and AI investment would support U.S. growth |  |
Fiscal expansion and AI‑related investment provided a stronger‑than‑expected underpinning for U.S. growth, supporting the economy |
| The U.S. would outperform while the eurozone would lag as tariff front‑loading weighed on manufacturing |  |
The U.S. has outperformed as expected, supported by resilient AI‑related investment and fiscal tailwinds, but anticipated eurozone manufacturing weakness has been less evident |
| Expectation at start of 2026 | How we did | On reflection |
|---|---|---|
| Equity market leadership would broaden beyond mega‑cap tech | |
Equity market leadership broadened beyond mega‑cap tech, with small‑caps and value stocks outperforming year‑to‑date1 even as AI‑related companies remained important drivers of returns |
| AI would remain a key market driver, with leadership evolving | |
AI remained a dominant market driver, with leadership beginning to expand toward infrastructure and semiconductor enablers |
| Expectation at start of 2026 | How we did | On reflection |
|---|---|---|
| Fiscal expansion would push government bond yields higher | |
Government bond yields faced sustained upward pressure as the energy price shock, fiscal deficits, and increased issuance weighed on markets, reinforcing the influence of policy on interest rates |
| Credit markets would remain resilient, but selectivity would be key | |
Credit markets remained broadly resilient, but tight valuations and emerging dispersion reinforced the importance of disciplined credit selection |
| Expectation at start of 2026 | How we did | On reflection |
|---|---|---|
| Equities would be favored over bonds | |
Equities generally outperformed bonds |
| Non‑U.S. equities would offer stronger opportunities | |
Non‑U.S. equities showed improving fundamentals and periods of outperformance,1 but questions about the sustainability of those fundamentals have emerged due to headwinds from higher energy costs and less accommodative monetary policy |
“Expectations at start of 2026” are from our 2026 Global Market Outlook, issued in November 2025. The Scorecard does not reflect all views and expectations covered in that report. “How we did” reflects what we got right and wrong as of the time of this writing. The orange dash indicates we were partially right. Future outcomes may differ materially, and the information provided is subject to change. Past performance is not a guarantee or a reliable indicator of future performance.
1 Based on index data, as of May 29, 2026.
Geopolitical outlook
Rising global tensions are spurring reinvestment in domestic capacity and a broader shift toward economic fragmentation.
Rising global tensions are spurring reinvestment in domestic capacity and a broader shift toward economic fragmentation.
Policymakers worldwide are prioritizing energy security, domestic production, and supply chain leverage over efficiency and integration. This will likely widen regional divergences as globally exposed and trade-sensitive sectors face pressure. While markets have remained relatively strong this year, continued economic fragmentation is likely to drive a more differentiated and volatile environment.
Global supply chain pressures have spiked this year
Energy shocks and AI demand are lengthening delivery times
As of April 30, 2026.
Source: Global Supply Chain Pressure Index (GSPI), Federal Reserve Bank of New York.
Notes: GSCPI readings for the most recent months can be revised as realized data become available, replacing the imputed values generated through principal component analysis. Further, for some series, mainly the BLS airfreight cost indices, each new release comes with revisions to up to twelve months of previous data. Thus, revisions can have an impact up to a year back in time.
Source: Global Supply Chain Pressure Index (GSPI), Federal Reserve Bank of New York.
Notes: GSCPI readings for the most recent months can be revised as realized data become available, replacing the imputed values generated through principal component analysis. Further, for some series, mainly the BLS airfreight cost indices, each new release comes with revisions to up to twelve months of previous data. Thus, revisions can have an impact up to a year back in time.
What happens when supply chains are disrupted?
Potential impacts of the energy shock on inflation, growth, and interest rates
As of May 31, 2026. Analysis by T. Rowe Price. For illustrative purposes only.
Inflation outlook
The fight against inflation looks increasingly difficult as a manufacturing revival, fiscal expansion, and policy shifts introduce new risks.
The fight against inflation looks increasingly difficult as a manufacturing revival, fiscal expansion, and policy shifts introduce new risks.
Central banks are abandoning or reversing rate-cutting cycles amid the current energy shock, and the specter of stagflation further complicates monetary policy in some countries. At the same time, a global manufacturing recovery and rising industrial prices are adding to inflation pressures. Markets appear to be underestimating the longer-term inflation risks.
Energy outlook
Energy scarcity is reshaping supply chains and opportunities
Energy scarcity is reshaping supply chains and opportunities
in commodities-related sectors.
War-driven supply shocks have exposed fragile energy markets, resulting in structurally higher prices, regional shortages, and rising demand for different sources of energy. In this new environment, the themes of energy security and diversification—in addition to critical minerals production—lead to compelling investment opportunities.
Oil markets were tightening before the Iran war
Rig count was falling despite elevated prices
As of April 30, 2026. Sources: Baker Hughes, West Texas Intermediate oil price.
AI outlook
AI is transitioning from a concentrated technology trade into a wider industrial and infrastructure investment cycle.
AI is transitioning from a concentrated technology trade into a wider industrial and infrastructure investment cycle.
As hyperscaler spending on AI accelerates, investment opportunities are expanding beyond semiconductors into infrastructure and industrial beneficiaries poised to capitalize on rising power, connectivity, and operational demands. But selective approaches toward the AI trade—rather than simple participation—will likely prove beneficial.
AI capex continues to soar
Hyperscaler capex, trailing 4‑quarter total
As of May 15, 2026.
E=Estimates.
K=1000.
The specific securities identified and described are for informational purposes only and do not represent recommendations to buy or sell any security. For illustrative purposes only. Estimates are consensus estimates. Actual outcomes may differ materially from estimates. Estimates are subject to change. Hyperscalers are cloud‑service providers that operate at an extremely large scale. This is a sample of U.S. hyperscalers and is not an all‑inclusive list. Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.
E=Estimates.
K=1000.
The specific securities identified and described are for informational purposes only and do not represent recommendations to buy or sell any security. For illustrative purposes only. Estimates are consensus estimates. Actual outcomes may differ materially from estimates. Estimates are subject to change. Hyperscalers are cloud‑service providers that operate at an extremely large scale. This is a sample of U.S. hyperscalers and is not an all‑inclusive list. Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.
The great rotation
Returns may shift toward infrastructure providers
Analysis by T. Rowe Price. For illustrative purposes only. Actual outcomes may differ materially.
Market leadership outlook
The conditions that supported market concentration are shifting, expanding the opportunity set beyond the past cycle’s winners.
The conditions that supported market concentration are shifting, expanding the opportunity set beyond the past cycle’s winners.
The era dominated by scale and asset-light business models is giving way to a new equilibrium. As AI infrastructure spending has rewired market dynamics, leadership has begun to broaden across sectors and geographies. Active investors who can distinguish between capital investment that enhances returns and spending that dilutes them should be well positioned to take advantage of this shift.
2026 Tactical Allocation Views
As of May 31, 2026
T. Rowe Price multi-asset positioning—asset class
Stocks
- We remain neutral on equities, reflecting a balanced view between decent fundamentals—including a constructive earnings outlook and fiscal stimulus—and elevated valuations and the geopolitical backdrop.
- Within equities, we recently trimmed our global ex-U.S. overweight to neutral, shifted to a modest overweight to growth, and took profits after small-cap outperformance while maintaining an overweight.
Bonds
- We maintain a short duration profile through underweights to long-term U.S. Treasuries and core bonds, along with an overweight to high yield.
- We also maintain a long position in short-term Treasury inflation-protected securities.
Cash
- Though we still find cash/cash equivalent yield levels reasonably attractive, we maintain a neutral position given that cash yields are slightly below short-term bond yields.
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.
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