Strength in the cycle to propel markets higher

Intense months lie ahead for investors. The stakes are high in geopolitics, economic policies, and US politics. But beneath the headlines, a powerful investment cycle is lifting global growth.

What began as a US tech and AI-story is now much broader. Capital spending is spreading to energy, infrastructure and defence as many countries look to build strategic resilience. This is supporting demand, manufacturing, and corporate profits. While US policy uncertainty, tariffs and Middle East tensions may continue to create volatility, they are unlikely to derail the expansion.

The US economy remains robust. Consumers continue to spend despite pressure on real incomes, investment is strong and the labour market stable. So far, US growth is not generating underlying inflation, and core inflation is declining, while tariff levels remain broadly unchanged despite legal framework changes.

Therefore, there’s no reason for the Federal Reserve to raise interest rates. Inflation may take longer to reach target, and we can’t rule out a couple of rate hikes. But such moves would not alter the broader growth or inflation outlook.

In other regions, the picture remains constructive. Growth in Europe has held well despite the Middle East conflict. Concerns that energy could stoke further price pressures should prompt a further – and final – rate hike by the European Central Bank in September.

A powerful investment cycle is lifting global growth

In Japan, stable growth, government spending and inflation expectations argue for further interest rate hikes.

In China, weak domestic demand is prompting authorities to bring forward spending plans. But goods exports have been stronger than expected and the economy also benefits from the global investment race to dominate AI.

Read also: Oil market outlook – Chinese demand and post-conflict lessons

Looking ahead to next year, some of today’s tailwinds will fade: less supportive monetary policy, less US fiscal support – if the midterm elections deliver a divided Congress – and rising political risks in Europe. But the foundations of the global expansion remain in place, keeping recession risks at bay.

There has been no shortage of challenges for investors this year. Conflicts, uncertainties around US policies, the transformation of the global economy through AI, and the US-China race to dominate it. Yet despite these shifts, markets have remained resilient.

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Six investor questions for the final months of 2026

August 19, 2026

They are being supported by one of the most powerful investment cycles in modern history. Corporate profits are strengthening and creating opportunities across markets and sectors. We have stayed invested through periods of turbulence.

We enter the final months of the year with a pro-risk stance.

We enter the final months of the year with a pro-risk stance. Financial conditions remain benign and the risk of a Fed hiking cycle is low. Market performance is set to broaden further. A strong earnings outlook underpins our overweight to both developed and emerging market equities.

Read also: Ten Investment Convictions for H2 2026

Sovereign bond yields have climbed this year. But as well as solid growth prospects, long-dated bond yields also reflect fiscal, inflation and policy concerns. We stay neutral here, as well as in corporate bonds. The most compelling income remains in emerging market hard-currency debt, which we overweight.

An environment where markets expect tighter monetary policy but resilient growth tends to support higher-yielding currencies, such as emerging currencies, over lower-yielding ones such as the euro and Swiss franc. We stay neutral on the US dollar.

Geopolitics, Fed policy uncertainty and swings in AI sentiment could all spark volatility. The waves created by political risks and shifting economic currents are rising. Investors will need discipline and vigilance.