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

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
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