Welcome to our 2026 outlook

At a glance

• The case for investing in equities remains strong. US equities are underpinned by healthy corporate earnings, while emerging markets, such as Taiwan and South Korea, look increasingly appealing.
• Bond markets to continue to see more ‘normal’ conditions. This can provide important diversification benefits for investors in balanced portfolios.
• The influence of commodities shouldn’t be underestimated. Supply and demand dynamics suggest downward pressure on oil prices in 2026, which could help to keep inflation down.
• The fiscal discipline of governments around the world – the balance between taxation and spending – will be a key focus point for markets.
• Our optimistic view is balanced by risks in what is quite an expensive market.
• Welcoming in 2026 can be a good time to reflect and review your finances, well in advance of tax year end. Post-Autumn Budget, there is now firmer ground on which to set plans for the future.

Foreword

We remain largely positive
As we enter 2026, we remain largely positive about the potential for higher risk assets, such as equities, to deliver another positive year. This would mark the fourth consecutive year of gains, if this materialises. Our optimistic outlook is based on several key beliefs, but above all, earnings growth – particularly in the US – remains supportive in our minds and is typically a necessary condition for equity markets to advance.

All major regions delivered positive earnings growth in the 12 months to the end of September, and we believe this positive trend will continue. We expect this to be led by the US, as we explore in Theme 1, as well as other regions such as Europe and emerging markets, where US dollar weakness is contributing positively to local dynamism.

The impact of central banks, which are likely to reduce rates further, is aided by limited inflation in most developed countries and is positive for markets. In the US, the Federal Reserve resumed its rate cuts in September 2025 and there is potential for more in 2026, something which is usually supportive for markets.

The same is true in the UK and Europe. The European Central Bank, while currently on pause, has reduced interest rates to 2%, a decrease of two percentage points from levels seen in 2023 and 2024. Rate cuts already implemented, coupled with those likely to come, represent a powerful force supporting equities in 2026.

Many other factors are worth mentioning, such as:

• The impact of artificial intelligence (AI) on profit margins and productivity
• Solid growth anticipated in US gross domestic product (GDP)
• The strength of consumers worldwide, and
• The low price of oil.

These factors are all positive for risky assets and are discussed further in our outlook. One rarely mentioned factor is the impact of private equity and the scarcity of listed equities on both sides of the Atlantic.

The number of listed equities for the UK and US combined has come down around 12% over the last two years*. This is a trend that is evident across many developed markets and, all else being equal, is supportive for equities in the medium term.

For fixed income, high yields – the level of income paid to bondholders – continue to provide overall support, as they did in 2025. Lower short-term yields should be supportive for UK government bonds, also known as gilts. While we remain somewhat more cautious on long-term bonds, short- and medium-term maturity bonds should continue to offer support and diversification in multi-asset portfolios.

Diversification beyond the US
While the US has been by far the most attractive region in recent periods, other markets are catching up due to lower valuations and renewed dynamism. This is particularly true for emerging markets, which are benefitting from a weaker US dollar, or at least a dollar that is not penalising their finances. Similarly, in Europe, the German fiscal stimulus is expected to gain further traction in 2026 and will provide a positive boost to the entire continent and is, in our view, largely underestimated.

As always, the road is likely to be bumpy. Progress is never linear and periods of higher volatility – where asset prices move around more sharply – are inevitable throughout the year. However, with a healthy environment for corporates, supportive central banks, and resilient consumers, we are optimistic that well-constructed and diversified portfolios will deliver attractive returns in 2026.

About this update: This video was filmed on 8 December 2025.

Source for Outlook data: MacroBond, J.P. Morgan Personal Investing and Bloomberg.

*MSCI Investable Market Indices for the US and UK, covering large, mid and small capitalisation companies.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance and forecasts are not a reliable indicator of future performance. We do not provide investment advice in this update. Always do your own research.