Outlook 2026: Core investment implications
KEY POINTS
While the global economy demonstrated remarkable resilience in 2025, the true impact of US tariffs – one of the year’s dominant stories – remains uncertain. However, the International Monetary Fund has raised its 2025 global growth forecast to 3.2%, up from the 3.0% projected in July, and has maintained its 2026 estimate at 3.1%.1
From a markets perspective, we expect continued investment in artificial intelligence (AI) to underpin US growth and productivity, sustaining technology sector leadership. Bonds should benefit from continued central bank easing in 2026. A resilient global economy and monetary policy measures should keep fiscal concerns in check, while the core scenario is positive for credit markets.
- {https://www.imf.org/en/blogs/articles/2025/10/14/global-economic-outlook-shows-modest-change-amid-policy-shifts-and-complex-forces;Global Economic Outlook Shows Modest Change Amid Policy Shifts and Complex Forces}
Central investment scenarios
Despite persistent risks, global growth remains resilient, with AI emerging as a key driver of productivity and capital investment
The US economy continues to demonstrate resilience. AI spending, an equity market-led wealth effect, and a strong credit environment, helped by expectations of lower interest rates, are all supporting growth.
AI stands out as a structural disruptive force given its promise of rapid improvements in productivity. The technology has the potential to transform legacy business models, optimize value chains, and drive significant advancements in fields like medicine and agriculture.
To realize this potential, large investments are being directed toward infrastructure and the AI value chain, including data centers, cloud computing capabilities, and increased energy supply. Rising stock prices of key players in the AI race are contributing to a wealth effect underpinning consumer spending, investment, and US economic leadership, even amid ongoing concerns about international trade and other policies.
Implementation idea - Disruptive technologies in US and emerging markets Rationale: The AI investment cycle has the potential to transform business operations and employment, while delivering innovative, beneficial new products and services across the world economy. As more powerful applications are developed, investment opportunities in AI infrastructure, the value chain. and downstream applications will be abundant. The unrealized potential of AI should continue to support elevated capital expenditure and selective, long-term investment opportunities. |
Time for Europe to step up
Europe faces trade, geopolitical, and competitiveness challenges. The good news is that the region has acknowledged these issues, as outlined in 2024’s Draghi Report on European economic competitiveness. The challenges have become more pressing due to the changing relationship with the US, the need to increase defense spending, and the desire to invest more in the green transition and technology.
Some positive tailwinds are also developing. Growth has remained resilient in recent quarters. The European Central Bank should maintain low, or possibly even lower, interest rates, while Germany’s fiscal plans have the scope to bolster growth throughout the Eurozone.
That said, fiscal issues, a still-fragmented capital market, and domestic politics may conspire to act as a drag on growth. Nevertheless, 2026 should bring further progress as the European Union focuses on creating better economic policies to address adverse global developments.
Implementation idea - European equities Rationale: Strategic areas of focus related to achieving more economic autonomy will underpin investment opportunities in European equities in 2026. Spending on defense, digital infrastructure, and green technologies are high priorities across Europe and will be supported by both national and European Union-wide initiatives over the coming years. These initiatives are likely to generate multiplier effects across sectors, and with European equities trading on lower valuations than in the US or Japan, we believe the potential opportunities in European equities are compelling. |
Bond markets – credit in focus
Fixed income returns were healthy in 2025, and bond yield levels suggest that income-based returns will be positive going forward, barring any major interest rate or credit shock. Our core view is that rates will continue to move lower in 2026, supporting bond markets broadly.
However, several risks could generate periodic bouts of volatility in fixed income. High levels of public borrowing could create issues in some government bond markets. Additionally, there is a risk that US inflation may stay elevated. There are also concerns that tight credit spreads – differences in yields between corporate and government bonds – will limit continued positive excess returns in investment-grade and high-yield bonds. Convergence of US and Eurozone interest rates could also have implications in the foreign exchange markets.
Implementation idea - Flexible fixed income Rationale: Credit markets could experience some volatility if corporate earnings slow or concerns about credit quality arise. For active fixed income strategies, the current environment is likely to produce many opportunities to capitalize on interest rate and credit spread volatility in the context of continued positive market returns for fixed income. |
Disclaimer
This document is being provided for informational purposes only. The information contained herein is confidential and is intended solely for the person to which it has been delivered. It may not be reproduced or transmitted, in whole or in part, by any means, to third parties without the prior consent of the AXA Investment Managers US, Inc. (the “Adviser”). This communication does not constitute on the part of AXA Investment Managers a solicitation or investment, legal or tax advice. Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
© 2025 AXA Investment Managers. All rights reserved