Both monetary policy and the global economy should be supportive for markets, say AXA IM CIO, Core Investments, Chris Iggo and BNP Paribas Asset Management, Chief Market Strategist, Daniel Morris. In equities, they favour disruptive technology in the US and emerging markets, as well as opportunities in Europe that benefit from the region’s strategic autonomy initiatives, while in fixed income they prefer flexible, absolute return strategies.
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% from the 3.0% it projected in July and has kept its 2026 estimate at 3.1%.[i]
From a markets perspective we expect spending on artificial intelligence (AI) will continue to support US GDP and technology sector stocks. 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.
Central investment scenarios
Despite risks, growth remains resilient, powered by AI
The US economy remains resilient. Spending on AI; an equity market-led wealth effect; and a strong credit environment, helped by expectations of lower interest rates, are supporting growth. AI is the primary potential disruptor given its promise of rapid improvements in productivity. The technology has the potential to disrupt legacy business models, optimise value chains, and generate significant advances in fields such as medicine and agriculture. To achieve this, huge investment is taking place in infrastructure and the AI value chain - data centres, cloud computing capabilities and securing 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, despite concerns about international trade and other policies.
Implementation idea - Disruptive technologies in US and emerging markets
Rationale: The AI boom has the power 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 in downstream applications will be abundant. The unrealised potential of the technology should underpin continued strong capital expenditure and potentially profitable investment opportunities.
Time for Europe to step up
Europe faces trade, geopolitical and competitiveness challenges. The good news is that the region has recognised this - as outlined in 2024’s Draghi Report on European economic competitiveness. The challenges are made more urgent by the changing relationship with the US; the need to increase defence spending; and the desire to invest more in the green transition and technology. Some positive tailwinds are developing – growth has been resilient in recent quarters, and 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. Fiscal issues, a still fragmented capital market, and domestic politics may conspire to act as a drag on growth, but 2026 should also see the bloc make progress on developing 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 defence, digital infrastructure and green technologies are prioritised across Europe and will be supported by both national and European Union-wide initiatives over many years. There will be multiplier effects from this across numerous sectors, and with European equities trading on lower valuations than in the US or Japan, in our view the potential opportunities in European equities are clear.
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 in the absence of any interest rate or credit shock. Our core view is that rates will fall further in 2026, supporting bond markets in general. However, there are risks that could generate periodic bouts of volatility in fixed income. High levels of public borrowing could create issues in some government bond markets; there is a risk that US inflation may stay elevated; and there are concerns that tight credit spreads – differences in bond yields - 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: There could be some volatility in credit markets if corporate earnings slow or there are concerns about credit quality. For active fixed income strategies there are likely to be many opportunities to exploit this potential interest rate and credit risk volatility in the context of continued positive market returns for fixed income.
