House View 2026 Outlook

Equities

We remain bullish on equity markets. While high valuations, the threat of an AI bubble and the dangers posed by high levels of market concentration, all pose risks, there are plenty of upside risks too. We might be at the beginning of a new cycle for traditional manufacturing, aided by the increased spending on AI. If this proves true, equities could rise appreciably further next year.

While interest rates could begin to climb in the second half of 2026, so long as that is driven by stronger demand, and not a response to renewed inflation, it is unlikely to derail the rally in equities.

However, the market’s patience around vast AI-related capital expenditure might start to be tested later in 2026, without clearer evidence this investment is beginning to deliver a return. 

Government bonds

We enter 2026 with an overall neutral view on government bonds, but with an overarching bias for higher yields as the year progresses, supported by an expected rebound in economic growth and looser fiscal stances. US yields are seen drifting higher as growth recovers and risk premia rise amid persistent fiscal deficits. The appointment of a new chair of the Federal Reserve in May could inject volatility.

In Europe, economic growth has outstripped expectations, and fiscal stimulus is set to arrive next year. This points to higher yields and steeper yield curves. We don’t believe the European Central Bank will cut rates further.

The UK bond market looks to offer better value, given a sluggish economy and the possibility of deeper rate cuts than the market is pricing in.

Credit

Corporate bonds look expensive given the meagre amount of additional yield currently on offer relative to government debt. We are concerned about large issuance from technology companies looking to finance AI-related capital expenditure, along with lease agreements, off-balance sheet vehicles, and other contingent liabilities.

This supply is not negligible, even relative to a market that boasts $10 trillion worth of bonds,and is likely to have an impact on it. We expect spreads to widen, even as companies in other sectors remain more disciplined.

Private Markets

Private markets remain well positioned to navigate the macroeconomic economic environment. Their breadth and long-term nature means they are well-designed to capture long-term themes, including technology adoption and the energy transition. That said, the growth in some sectors, such as private credit, warrants some caution. The links to the broader financial system have deepened and there are pockets that could face challenges in the year ahead.

1. Growth rebound to end G10 rate cutting cycle

With inflation still above target, monetary policy easing looks to be drawing to a close. It is impossible to pinpoint when central banks will feel they have done enough, but as evidence of strengthening economic activity grows, we expect more will feel rates are now at neutral, and that further easing would be imprudent.

Should economic growth prove stronger than we expect, there is even the risk of hikes and some emerging countries’ central banks would be likely to lead the way. On the flip side, while it may seem unlikely, were problems to emerge in corporate bond markets or the AI boom to go bust, central banks would be expected to cut rates.

2. AI investment cycle – Rapid expansion and increasing influence

The rapid increase in AI-related investment is feeding through into various data points, from individual company results to the US national accounts (see opposite). 

We have highlighted previously how investment on this scale is likely to have much broader ramifications than many might expect. A growing number of companies, many not initially seen as beneficiaries of the investment cycle, have surprised investors in terms of the extent to which revenues are being boosted.

Given the broad nature and the sheer magnitude of the investment cycle, the tendency will be for the benefits to continue to spread more broadly down the supply chain and throughout the economy.

3. Geopolitics of trade: a temporary truce

While strains between the US and its main trading partners are not going to disappear, in most cases uneasy truces appear to have been reached. This does not apply to China and Russia however.

Selective decoupling of industries, and competitive confrontation, is the best way to describe the increasing tension between unresolvable world views. Resource nationalism is a key battlefield, with rare earths, and critical minerals more broadly, an Achilles heel for the global economy.

China dominates production and refining of these in almost all areas (see below), but is likewise vulnerable to the threat of US restrictions on various high-tech components. For now, as both sides race to insulate themselves, while ramping up their war machinery, proxy wars and territorial conflict, or attempts at soft power diplomacy such as the US decision to loan Argentina money, will be par for the course.