After several challenging years for investors, the outlook for 2026 appears more balanced than it has been in some time. Global growth is expected to remain resilient, inflation pressures are easing rather than re-accelerating, and financial conditions are gradually becoming more supportive. While risks have not disappeared, the environment is materially more constructive than investors had grown used to. In short, this is not a market that calls for aggressive positioning or bold macro bets. Instead, it favours sensible diversification, regular portfolio rebalancing and disciplined decision making.
Growth takes the lead
One of the key questions for markets in 2026 is whether inflation or growth will be the dominant influence. At present, growth appears set to play the leading role.
Interest rate cuts delivered in parts of the world during 2025 are starting to feed through into economic activity. Labour markets remain relatively resilient, corporate balance sheets are generally healthy, and growth is becoming less concentrated in the US, with stabilisation evident in parts of Europe and Asia. At the same time, inflation, while still above target in some developed markets, continues to trend lower.
This combination of steady growth and easing inflation provides a supportive backdrop for both equities and bonds, and reduces the need for extreme portfolio positioning. Diversification once again becomes a valuable tool rather than a drag on returns.
A changing outlook for the dollar
The US dollar has been a major headwind for global and emerging market assets over the past decade. That regime may now be shifting.
Interest rate differentials between the US and other major economies have narrowed, and the dollar remains elevated relative to long-term averages. While this does not point to a sharp or disorderly decline, it does suggest that chasing further US dollar strength may be less rewarding going forward.
A more stable or gradually weaker dollar improves diversification and tends to be supportive of international equities, emerging-market assets, and local-currency bonds.
Geopolitics: Still present, but less dominant
Geopolitical risks remain part of the investment landscape, but markets appear to be pricing fewer extreme tail-risk outcomes than in recent years. Relations between major powers have stabilised somewhat as governments focus more on domestic priorities, which reduces the risk of sudden, growth-derailing shocks.
That said, geopolitics has not disappeared. Ongoing trade frictions, strategic competition in key technologies and regional tensions will continue to influence markets. For 2026, however, geopolitics is more likely to act as a background consideration rather than a primary driver, supportive of risk assets, while reinforcing the importance of diversification.
Time to rebalance
Developed market equities have delivered strong returns in recent years, led by a narrow group of large US technology and AI-related stocks. While many of these companies remain high quality, valuations are elevated, and portfolios have become increasingly concentrated.
Looking ahead to 2026, market leadership is likely to broaden. Sectors that benefit from lower interest rates, such as financials and industrials, could perform more evenly, while defensive growth areas like healthcare may regain appeal. Outside the US, developed markets, particularly Europe, offer more attractive valuations and could benefit as inflation falls and fiscal policy becomes more supportive.
This points to gradual rebalancing rather than dramatic shifts, reducing concentration risk while maintaining appropriate exposure to equities.
Bonds are also becoming relevant again. After several difficult years, government and high-quality corporate bonds now offer more attractive income and can help stabilise portfolios if growth disappoints. While large capital gains may be unlikely, bonds can once again play their traditional role as a source of income and diversification.
Opportunities reopening
Emerging markets are beginning to regain investor attention after a prolonged period of underperformance. A softer US dollar, easier financial conditions and improving corporate discipline have allowed earnings growth to translate more effectively into returns in parts of the universe.
Growth in emerging markets continues to outpace that of developed economies, and valuations remain at a discount. Importantly, emerging markets are highly diverse. Risk can be managed by spreading exposure across regions, balancing more technology-linked markets in Asia with domestically driven growth stories in India, ASEAN and Latin America.
In fixed income, emerging-market local-currency bonds offer attractive income opportunities across several countries. Disinflation has left real yields elevated in parts of the EM universe, creating scope for future rate cuts. However, conditions vary widely by country, making selectivity and active management essential.
Key themes: AI and commodities
The excitement around artificial intelligence has become more measured. Investor focus is shifting from hype to profitability, efficiency and sustainable business models. This creates opportunities, but also clear winners and losers, highlighting the importance of diversification within the theme.
Commodities continue to play a useful role in portfolios. Gold remains supported by its role as a hedge against geopolitical uncertainty and currency risk, while copper benefits from long-term trends such as electrification, infrastructure investment, and data centre expansion. Resource equities can also provide diversification away from expensive growth stocks.
The bottom line
2026 does not look like a year for dramatic market calls. Instead, it appears well suited to balanced portfolios, steady rebalancing and disciplined asset allocation.
With growth expected to remain resilient, inflation easing and policy becoming more supportive, investors are likely to add the most value by staying diversified, managing risk and avoiding chasing last year’s winners. In short, 2026 looks like a year where well-constructed portfolios, not bold bets, should be rewarded.