2026 Global Market Outlook - Multi-Bank Analysis

Executive Summary

2026 Market Outlook: 8-Institution Consensus

All eight institutions are constructive on equities for 2026, driven by strong earnings growth, accommodative policy, broadening market participation, and strategic fiscal stimulus

AI investment to remain a dominant theme, with capital expenditure expected to continue accelerating

Fed expected to deliver modest additional cuts; ECB expected to remain on hold through 2026

Interest rate outlook reflects structural shift: equilibrium rates higher than post-GFC lows

Dollar weakness expected to continue at slower pace; EURUSD projected to reach 1.25 by end-2026

S&P 500 Price Targets & Earnings

Firm	YE 2026 Target	2026 EPS	EPS Growth	Key Thesis
JPMorgan	7,500	$315	13-15%	AI supercycle + operating leverage
Morgan Stanley	7,800	$317	17%	Rolling recovery + broadening earnings
Deutsche Bank	8,000	$320	14%	Demand-supply framework + strong earnings
UBS	7,700	$305	10%	Strong compute demand + supportive policy

Regional Price Targets

Eurozone

Stoxx Europe 50 YE 2026

6,200

EPS Growth 2026

7-13%

Thesis: German fiscal stimulus, improving cyclical outlook, better valuations than US

Japan

TOPIX YE 2026

3,750

EPS Growth 2026

14-16%

Thesis: Sanaenomics reforms, cash unlocking, but concerns on yen weakness

Major Banks: JPMorgan, Morgan Stanley, Deutsche Bank, UBS

S&P 500 Price Targets & Earnings

Firm	YE 2026 Target	2026 EPS	EPS Growth	Key Thesis
JPMorgan	7,500	$315	13-15%	AI supercycle + operating leverage
Morgan Stanley	7,800	$317	17%	Rolling recovery + broadening earnings
Deutsche Bank	8,000	$320	14%	Demand-supply framework + strong earnings
UBS	7,700	$305	10%	Strong compute demand + supportive policy

2026 Market Outlook Summary

JPMorgan

Theme: AI Supercycle & Policy Tailwinds

✓ Growth: Expansion phase; AI capex + US/German fiscal still lifting global growth
✓ Equities: Overweight US; favor quality large‑cap, AI winners, and select cyclicals
✓ International: Positive Europe & Japan on fiscal stimulus and reforms; selective EM
✓ Rates & FX: Fed cuts further; mild bear‑steepening; USD drift weaker vs EUR/JPY
✓ Credit: Prefer shorter‑dated rates, quality credit, and real assets as inflation hedges

Call: Stay pro‑risk but rotate toward quality and global breadth

Morgan Stanley

Theme: Breadth & Rotation

✓ Growth: US slows toward trend; Europe/EM improve as activity broadens
✓ International: Favor Europe & Japan as relative value & earnings revisions improve
✓ Equities: Earnings‑led gains with rotation beyond mega‑caps, factor dispersion
✓ Style & Sectors: Tilt to quality, cyclicals and small/mid‑caps as leadership widens
✓ Alts & Thematics: Private markets & AI/reshoring themes for incremental alpha

Focus: Harvest widening equity breadth with active, style‑aware positioning

Deutsche Bank

Theme: Demand–Supply Rebalance

✓ Growth: Solid global growth; AI, infrastructure and defense capex main drivers
✓ Equities: Most bullish SPX stance; strong EPS and some multiple expansion assumed
✓ Credit: Expect higher term premia; prefer short‑intermediate duration
✓ Europe: Constructive on fiscal‑driven recovery, Germany & industrials/utilities
✓ FX & Commodities: Weaker USD; support for EUR and real‑assets of energy/power

Call: Lean into cyclical & capex beneficiaries, manage rate‑level risk

UBS

Theme: Two-Speed Economy

✓ Growth: Soft‑landing bias; growth slows but recession not base case
✓ International: Better valuation support in Europe & select EM than US benchmarks
✓ Equities: Neutral/modestly positive US; diversified global over Mag‑7 concentration
✓ Credit: Favor high‑quality duration and IG credit; cautious on lower‑quality HY
✓ Alternatives: Real assets & private markets selectively as diversifiers, not core beta

Focus: Protect capital with valuation discipline & diversified global exposures

Asset Managers: State Street, Invesco, BlackRock, T. Rowe Price

2026 Market Outlook Summary

State Street

Theme: Forward with Focus

✓ Growth: Moderate expansion; AI capex supportive; lingering policy risks
✓ Rates: Limited further rate cuts plus broader fiscal easing in the US, Europe and Asia
✓ Equities: Constructive, slight US tilt; valuations + concentration demand selectivity
✓ Credit: Prefer sovereigns over credit in DMs; room for EM debt as an income source
✓ Alternatives: Gold, real assets and private markets as structural diversifiers

Call: Use AI & policy tailwinds, be selective & diversified in a “growth amid uncertainty” regime

Invesco Strategy

Theme: Global Acceleration Ahead

✓ Global Growth: Expected to accelerate; rate cuts supportive
✓ Central Banks: Fed eases ~100bps; ECB/SNB near end; BoJ hikes
✓ Asset Preference: Non-US equities > Commodities > REITs > Bank Loans
✓ Valuations: Gold & Bitcoin expensive; Industrial commodities attractive
✓ Currencies: USD weakens; JPY strongest; EUR/CNY strengthen

10-Yr View: Bank loans & HY credit dominate optimal portfolios

BlackRock

Theme: Pushing Limits

✓ Growth: AI‑driven capex; upside if productivity breaks past 2% trend
✓ Policy: Modest Fed cuts; higher real yields and term premia persist
✓ Equities: Overweight US; AI mega‑force with high dispersion, active focus
✓ Credit: Underweight long USTs; favor EM hard‑currency and select DM govies
✓ Alternatives: Prefer infrastructure equity and private credit tied to AI buildout

Focus: Mega‑forces, granular positioning, beyond broad benchmarks

T. Rowe Price

Theme: Two-Speed Economy

✓ Asset Allocation: Underweight US equities; Overweight non-US
✓ International: Europe & China offer better value; small-cap upside
✓ Fixed Income: Overweight high yield; Local currency bonds attractive
✓ Private Markets: IPOs reviving; M&A momentum building
✓ Real Assets: Overweight; Benefits from inflation, AI demand, weaker dollar

Call: Fiscal expansion driving 2-speed growth; deregulation tailwinds

US Market Outlook 2026

Economic Growth Forecasts

GDP Growth

JPMorgan

~2%

Morgan Stanley

2.4%

Deutsche Bank

2.4%

Inflation Outlook (Core PCE)

H1 2026 Expected

~2.8-3.0%

Q4 2026 Expected

2.4-2.5%

Note: Disinflation continues but stops short of 2% target long-term

Key US Market Drivers

AI & Capex

✓ Demand exceeds compute supply
✓ Large‑cap AI capex in the hundreds of billions
✓ Broadening beyond mega-cap tech
✓ Double‑digit AI capex growth expected in 2026

Policy Support

✓ Fed: 2-3 more cuts expected
✓ Tax cuts via OBBBA rolling out
✓ Deregulation benefits: Financials, Housing
✓ Potential tariff relief from SCOTUS

Risks & Headwinds

⚠ Labor market fragility
⚠ AI capex efficiency returns
⚠ Tariff uncertainty persists
⚠ Fed independence concerns

US Sector Preferences (Consensus)

Overweight Sectors

Technology: AI leaders, semiconductors, cloud infrastructure

Financials: Deregulation tailwinds, MA recovery, capital deployment

Utilities: AI power demand, grid modernization

Healthcare: Pharma pipeline strength, AI drug discovery

Industrials: Defense spending, manufacturing efficiency

Underweight/Neutral

Energy: Brent crude expected $50-60/barrel in 2026

Consumer Discretionary: K-shaped economy persists

Real Estate: Higher sustained rates pressure valuations

European Market Outlook 2026

Economic Outlook

Eurozone GDP

2026 Growth

1.1-1.5%

Recovery from 1.4% in 2025; Q4Q4 acceleration expected

Germany GDP

2026 Growth

1.5%

Largest growth boost in major economies post-stagnation

Eurozone Inflation

Headline HICP

1.7%

Temporary undershoot in early 2026 due to energy base effects

Europe Key Drivers

Growth Tailwinds

German fiscal stimulus: €100B+ defense/infrastructure spend

Earnings recovery: 7% growth 2026, 18% in 2027

Wage growth supporting consumption as inflation moderates

AI adoption similar to US, better valuations

Labor market tightening supports inflation near target

Structural Challenges

Tariffs: €0.5% of GDP direct cost estimated

Competitiveness: China competition remains structural headwind

Political risk: French elections 18 months away, snap election risk

Energy costs: Remain elevated vs. competitors

Monetary Policy & Market Signals

ECB Policy

2026: Expected to remain on hold at 2.0%

2027: First hike likely mid-year

QT to continue through 2026 unless growth disappoints

Bond Market

10Y Bund Target YE 2026

3.10%

Mild bear steepening expected; upside to term premia

European Investment Themes

Cyclical Recovery

Banks: Upgrade to Attractive; benefit from higher rates, recovery

Industrials: Manufacturing recovery, defense spending

Structural Growth

Tech/IT: Semiconductors, AI infrastructure

Utilities: Grid modernization, renewable transition

Geographic Play

Germany: Fiscal boost driver

France: Undervalued after political discount

Rates & Foreign Exchange Outlook

Central Bank Policies

Central Bank	Current Policy Rate	YE 2026 Forecast	Path	Key Factors
Federal Reserve	3.75-4.00%	3.25-3.50%	2-3 more cuts	Moderating inflation, weak labor market, dovish leadership change
ECB	3.25%	3.25% (on hold)	Pause through 2026	Fiscal impulse, wage growth, inflation expectations anchored
Bank of England	4.75%	3.25%	Quarterly cuts through summer	Disinflation progress, labor market weakness
Bank of Japan	0.75%	1.00-1.25%	Gradual tightening	Persistent inflation, yen weakness forcing hand

Interest Rate Outlook: Key Thesis

Structural Shift: Higher Equilibrium Rates

Post-GFC assumptions (r* = 0.5%) no longer valid

Estimated equilibrium neutral rates: 3.5% (US) / 2.5% (Eurozone)

Drivers: Larger deficits, lower private savings, geopolitical risk premiums

Global term premiums expected to rise 15-25bp from fiscal impulse

2026 Yield Forecasts (YE)

10Y US Treasury: 4.45% (upward bias from current 4.1%)

10Y German Bund: 3.10% (from 2.7%)

10Y UK Gilt: 4.40% (slight decline from 4.5%)

10Y JGB: 1.90% (gradual increase from 1.8%)

Foreign Exchange Outlook

EURUSD

YE 2026 Target

1.25

Current Level

~1.15

Thesis: Dollar weakness continues; euro gains on cyclical recovery, external strength. Trump shock fading.

USDJPY

YE 2026 Target

~160-165

Current Level

~155

Thesis: BoJ tightening reluctance; inflation forcing hand eventually. Long-term weakness expected.

GBPUSD

Outlook

Mixed

Thesis: BoE more dovish than Fed; UK rates may overshoot down initially, then stabilize

CNYUSD

Outlook

Appreciation

Thesis: Renminbi undervalued with low inflation; trade truce supportive; corporates repatriating capital

Credit Market Outlook

US Credit Spreads

IG: 100bp H1 → 105bp YE 2026 (modest 20bp widening)

HY: 360bp H1 → 380bp YE 2026 (80bp widening)

Moderate widening expected; recession risk low but 'Fire & Ice' bifurcation continues

European Credit Spreads

IG: 93bp H1 → 103bp YE 2026

HY: 315bp H1 → 355bp YE 2026

European credit in better shape; German fiscal boost positive for CRE/industrials

Key Investment Themes for 2026

1. AI: From Concentration to Broadening

AI Datacenter & Infrastructure

✓ CONSENSUS ACROSS ALL 4 BANKS

2026 Focus: Mega-cap tech (Mag-7) maintains leadership; non-tech AI adoption accelerates

AI 30 stocks = 44% of S&P 500 market cap (concentration risk but fundamentals strong)
Capex: $585B by AI 30 alone; Hyperscalers: 35% capex growth 2026 vs 14% in 2027
Broadening: Software, Banking, Healthcare, Utilities applying AI for efficiency/revenue
Compute constraint vs. overcapacity: Still expecting demand > supply through 2026

Key Winners: Semiconductors, Data Center REITs, Power/Utilities, Cloud Infrastructure

2. Fiscal Stimulus & Economic Rebalancing

Policy-Driven Growth

✓ CONSENSUS ACROSS ALL 4 BANKS

US: OBBBA tax cuts, deregulation benefits, RD expensing, bonus depreciation

Cash tax rates to test lows; FCF growth uplift
Financials benefit from deregulation + capital deployment
Housing, infrastructure, manufacturing gain momentum

Europe (Germany): €100B+ fiscal impulse for defense/infrastructure

Defense spending multiplier unexpectedly high (private sector orders)
Manufacturing renaissance potential after 5-year stagnation
Eurozone capex cycle turning up

3. Power & Resources: Energy Transition & Strategic Supply

Secular Demand Drivers

✓ CONSENSUS ACROSS ALL 4 BANKS

Energy for AI: Data centers driving unprecedented electricity demand

Nuclear: Capacity to double by 2050; supply-constrained
Natural Gas: Essential baseload; new turbine demand
Renewables: Wind/solar for grid supplementation
Transmission: Grid modernization capex cycle

Strategic Resources: De-risking supply chains post-tariff uncertainty

Rare Earths: US/allies boosting domestic production against China dominance
Uranium: Nuclear renaissance + electricity demand
Semiconductors: Geographic diversification away from China/Taiwan risk

4. K-Shaped Economy & Income Polarization

Winners & Losers in 2026

Winners (High-End): Luxury goods, high-quality tech, premium discretionary

Wealth concentration continues; luxury remains resilient
Tech earnings growth + buybacks benefit shareholders disproportionately

Tactical Opportunities (Low-End): Short-term OBBBA benefits; longer-term challenged

Tax refunds, no-tax-on-overtime benefits: $60B stimulus to low-income households
But: Tariffs keep cost-of-living pressures; wage growth unlikely

AI Displacement Risk: Professional services, software, back-office roles at risk

5. Valuation: Expensive but Justified by Earnings

Forward PE Multiple Expansion Possible

✓ CONSENSUS ACROSS ALL 4 BANKS

S&P 500 Trading at 22-25x Forward PE (elevated vs. history)

But: 13-17% EPS growth assumptions are above-consensus & achievable
Quality of earnings much higher: 92% FCF positive (vs. 72% in 1999)
Operating margins strong for mega-cap tech (20%+); disciplined capital allocation
PEG ratios supported by growth trajectory
Comparison to 1999: SP500 at 31x vs. 44x then; better profitability today

Risk: Multiple compression if earnings growth disappoints significantly

8-Firm Convergences & Divergences

Universal Consensus (All 8 Firms)

Earnings Growth Positive

✓ 8/8 CONSENSUS

Range: 10-17% S&P 500 EPS growth in 2026

All expect strong revenue growth, operating leverage, pricing power

T.Rowe, Invesco add diversified view

AI Capex Cycle Continues

✓ 8/8 CONSENSUS

All expect sustained AI capex through 2026

Compute supply constraints persist; broadening adoption

ROI questions emerging; efficiency focus in 2027+

Fed Easing Cycle

✓ 8/8 CONSENSUS

2-3 more cuts expected (75-100bps); Fed Funds: 3.0-3.5%

DB: 2 cuts | Invesco: ~100bps cuts

All see further easing

European Recovery Story

✓ 8/8 CONSENSUS

Germany fiscal stimulus key driver; 1.1% EZ growth expected

7-13% European EPS growth vs weak baseline

Best opportunities in cyclical recovery phase

Dollar Weakness Narrative

✓ 8/8 CONSENSUS

All expect USD to weaken through 2026

DB: EURUSD: 1.25 | USDJPY: 135-165 (weaker yen resists)

Fed easing + deficit concerns + rate gaps support weakness

Yield Curve Steepening

✓ 8/8 CONSENSUS

Term premia rising; longer rates elevated vs historical

DB: 10Y UST: 4.30-4.45% | 10Y Bund: 3.10%

Fiscal deficits + geopolitical risk support yields

Diversification Overdue

✓ 8/8 CONSENSUS

All recommend reducing concentration in Mag-7

Valuations extended; rotations likely into quality, value, international

GS, Barclays, T.Rowe emphasize small-cap & EM

Key Divergences Among 8 Firms

SP500 Price Targets

Range

7,500 - 8,000

Most Bullish: Deutsche Bank (8,000)

Most Conservative: JPMorgan (7,500)

Divergence reflects different assumptions on multiple expansion + earnings

Earnings Growth Rates

Range

10% - 17%

Most Bullish: Morgan Stanley (17%)

Most Conservative: UBS (10%)

Reflects positioning on breadth recovery & AI tailwinds

Japan Positioning

JPM: Constructive (Sanaenomics reforms)

MS: Neutral (Valuation concerns + yen depreciation drag)

DB: Underweight (yen weakness, geopolitical risks)

UBS: Neutral (Best opportunities elsewhere)

Tariff Impact Duration

Consensus: H1 2026 absorption → targeted relief

Range: 0.3-0.5% GDP drag if full tariffs hold

Consensus: SCOTUS likely to curtail IEEPA use; lower effective rates

Summary: Investment Implications

What All Four Banks Agree On

Equities are attractive for 2026 with double-digit upside potential

Earnings growth is the key driver; valuations justified IF earnings materialize

Broadening of leadership beyond mega-cap tech expected (cyclical recovery play)

Diversification across regions/sectors beneficial; Europe particularly interesting

Fixed income: Duration headwinds but credit spreads modest widening only

FX: Dollar weakness trend continues; EURUSD a good tactical sell USD play

Key Risks to Watch (All Mentioned)

AI capex efficiency returns (lower near-term ROI leads to deceleration)

Labor market deterioration faster than expected (Fed policy error)

Political shocks (US mid-terms, French elections, geopolitical)

Recession probability still elevated if cycles turn sooner than expected

Margin compression if energy/wage pressures persist