In a feat not seen since 2019, global equities, bonds, and commodities all delivered positive returns in 2025,⁵ thanks to waning tariff concerns, central-bank easing, AI-driven growth, and the many splendors of gold. So, can the good times keep rolling in 2026, amid questions about valuations, an AI bubble, US-China relations, and other risks? We think four factors could drive positive results on balance but may cause choppiness along the way:

1. Earnings growth – The AI picture is complicated by increased competition and blowout spending. But we expect earnings strength to broaden beyond mega-cap tech and show up across regions, sectors, and market caps. Despite tariffs, companies have maintained and even expanded margins, giving us confidence that earnings improvements will translate to positive equity returns.

2. Global fiscal stimulus – Even if government debt is becoming a longer-term threat, every developed-market (DM) region has planned fiscal stimulus that should support nominal growth, consumer sentiment, and business investment (FIGURE 1).

3. Global interest rates – A cooling US labor market is driving Federal Reserve (Fed) easing expectations and supports our long duration⁶ stance. However, percolating inflation in the US and elsewhere could shift the landscape dramatically. Japan’s tighter monetary policy could be the first shoe to drop.

4. Political winds – Voters and markets could register their dissatisfaction with inflation and policy. Populist shifts in elections in the US, Europe, or Latin America could create volatility.

We also expect US equities to outperform, based not just on mega-caps and AI, but also a broadening earnings-per-share⁹ recovery. Even small caps are experiencing positive earnings revisions, ending a multiyear downgrade cycle. We’re watching for signs that AI growth is relying on too much leverage, but fundamentals are still strong for spending, including AI demand/supply, and we think high free-cash-flow margins represent a good buffer.

Turning to the largest index weights in EM, we’re constructive on Korea and Taiwan but think India and China are more challenged. The global backdrop (lower US rates, a weaker US dollar) is supportive, but our lack of conviction on China and India makes it hard to be more constructive on the asset class overall. The anti-involution campaign¹⁰ seeks to rebalance toward efficiency, and ultimately profitability, rather than production growth. This, however, will likely take time. In the meantime, the market has seen a sentiment- and liquidity-driven surge, with little support from earnings or a broader macro recovery.

We have a moderately underweight view on Europe ex-UK and the UK. The eurozone macro outlook is improving, but is being held back by the lack of clear progress on structural reform and by direct competition from China on key profit pools in industries such as autos and clean technology. Fiscal uncertainty in France and other countries as well as the potential for new elections further cloud the outlook. We expect high single-digit earnings growth here, though the region has consistently disappointed vs. consensus estimates. The UK is still the market with our lowest earnings expectations. It suffers from a lack of tech sector exposure and from policy uncertainty, which is impacting investment and spending.

Fixed Income: Favoring Government Bonds Over Credit

Comparing credit to government bonds, we prefer the carry¹¹ in higher-quality government bonds: Term premia are attractive and steeper yield curves are providing return from “rolling down the curve.”

Divergence is the story in government-bond markets, where cycles are less linked to the US. In fact, US 10-year rates rallied around 40 basis points (bps)¹² year-to-date in 2025, while other DM regions’ yields sold off 5 to 90 bps, a highly unusual break in direction and magnitude from the past 10 years.¹³ Another sign of the divergence is in central-bank policy expectations, with the market pricing in rate cuts by the Fed in 2026 and rate hikes by other DM central banks. These conditions are ripe for relative value opportunities, reflected in our overweight view on UK rates and underweight view on eurozone and Japanese rates.

Having been overweight credit in various sectors during 2025, we think the overall market’s return profile is more balanced now, and have moved to a neutral stance. The backdrop remains positive for risk assets, but spreads are extremely tight, leaving little upside potential beyond carry. While we think the tech sector as a whole has room for leverage, as noted in the equities section, we’re keeping a close eye on growing AI capital expenditures (capex)¹⁴ funding in the credit markets, with the risk that some tech companies will allow their balance sheets to deteriorate.

Commodities: What’s Ahead for Oil and Gold?

We have an underweight view on oil. While we think demand will be well supported, including by sustained stockpiling by China, we expect supply to exceed demand beginning in the first quarter and continuing throughout 2026 as OPEC+ pares back its supply cuts. Risks to our views include military action in Venezuela (short-term downside risk to supply) and a ceasefire in Ukraine resulting in sanctions being lifted on Russia (upside risk to supply).

We continue to hold a neutral view on gold. Financial demand drivers remain solid, including central-bank buying and digital-asset (stablecoin) demand. Speculative positioning (futures) is back to high levels while exchange-traded product flows have been supportive. Structural tailwinds remain as well, including fiscal deterioration and concerns about central-bank independence. However, valuations are extreme—they’re at their highest level since 1980 relative to financial wealth.