Ten Themes for 2026

Key takeaways

US economic resilience is expected to continue in 2026
The 10-Year Treasury yield should remain range-bound in 2026
Fundamentals remain supportive of US equities, but gains should be more muted

2025 had its fair share of surprises – but through it all, the economy and markets showed incredible resilience. Economic growth held near trend at 2%, the S&P 500 soared to 38 record highs, finishing up ~17.9% (total return). Bonds staged a comeback with the Bloomberg US Aggregate posting its strongest annual gain since 2020 – up 7.3%.

Now, as we turn the page to 2026, new challenges await: geopolitical tensions, lofty valuations, and an evolving macro backdrop. That’s why we’re excited to unveil our Ten Themes for 2026, inspired by Mission: Impossible, celebrating the 30th anniversary of its first movie this year.

The good news? While returns may feel “impossible” at times, long-term investors can succeed by staying agile, focusing on fundamentals, and seizing opportunities along the way.

1. Economy: Resilience to continue

Like Ethan Hunt, the US economy has repeatedly defied the odds, emerging stronger after 2025’s policy shocks and turbulence. Yet, despite trade conflicts and global headwinds, the US remains a leader in growth and innovation. We expect that resilience to carry into 2026, with GDP rising to 2.2%, supported by another Fed rate cut, tax relief under the One Big Beautiful Bill Act and new business investment incentives.

2. The Fed: Guardian of the economy

Like the IMF in Mission: Impossible, the Fed works behind the scenes to keep the economy stable. In 2026, the new leader of the Fed will face a high stakes mission: navigate policy uncertainty while balancing growth, inflation, and political pressure. With inflation still above target, we expect only one rate cut in 2026 – any more could potentially signal economic stress.

3. Volatility: Expect unexpected plot twists

Despite dramatic headlines, market volatility has been surprisingly subdued – but that calm may not last. We expect volatility to intensify across most asset classes in 2026. With historically elevated valuations and investors optimistic on growth and return prospects, markets remain vulnerable to any disappointing economic or earnings-related news.

4. Bonds: a stronghold for stability

For investors, the bond market remains a source of stability and reliability in uncertain times. We do not expect any dramatic sustainable moves and see the 10-year Treasury yield ending 2026 in the 4.25% to 4.50% range. A sustained break below that level would require a recession and a move above 5% would suggest waning demand for Treasuries – two scenarios outside our base case. For fixed income investors, the mission is clear: focus on income rather than relying on capital gains to augment returns.

5. US equities: a new identity

After years of outsized returns driven by P/E expansion, valuations now sit in the 98th percentile – making earnings growth the key driver in 2026. The dossier for success: solid earnings growth, a Fed leaning toward easing, stable long-term rates, and healthy buybacks and dividends. Our outlook: mid-single digit returns and an S&P 500 year-end target of 7,250.

6. The next phase of AI

For the past few years, the code word for equity outperformance has been simple: AI. However, the next phase demands greater discernment. While AI’s transformative power endures, leadership will broaden to the enablers – like the companies driving data collection, cloud applications, and robotics – plus a new wave of beneficiaries in lower-profile sectors, like consumer discretionary and industrials. The AI revolution isn’t over, but it is evolving, creating fresh opportunities and risks.

7. Thinking beyond the obvious

In Mission: Impossible, the most trusted person often turns out to be a mole, while the real hero lurks in the shadows. The two most overlooked sectors in 2025 – consumer discretionary and healthcare – are poised to rebound in 2026. Consumer discretionary should get a boost from AI exposure, tax cuts, and stronger consumer spending, while healthcare – now the most attractively priced sector – could rally if regulatory fears prove overstated, which is what we expect.

8. Power shifts

Every Mission: Impossible movie has a plot twist – like a double agent hiding in plain sight. For years, oil was the driver of the energy story, but the data center boom has flipped the script. With electricity prices set to outpace inflation, utilities may look like the obvious choice, but heavy utility regulations makes industrials – the makers of “picks and shovels” for the new energy era – a more reliable choice. With oil demand still sluggish, we expect oil prices to hover near $55-$60 a barrel over the next 12 months.

9. EM Asia an international bright spot

International equities delivered stellar performance in 2025, but the tailwinds favoring those markets will fade in 2026. The US remains our top pick among developed markets, supported by stronger growth and earnings trends. We also favor EM Asia, which is riding the “AI wave.” India is also poised to benefit from robust growth and an accelerating earnings trajectory.

10. Asset allocation: your blueprint for success

Investing, like any Mission: Impossible storyline, is never truly over – there’s always a new challenge. Building a diversified portfolio of different asset classes – stocks, bonds, cash – will help you navigate any market twists and turns, helping you stay on track to achieve your goals and objectives.

All expressions of opinion reflect the judgment of the author(s) and the Investment Strategy Committee and are subject to change. This information should not be construed as a recommendation. The foregoing content is subject to change at any time without notice. Content provided herein is for informational purposes only. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices and peer groups are not available for direct investment. Any investor who attempts to mimic the performance of an index or peer group would incur fees and expenses that would reduce returns. No investment strategy can guarantee success. Economic and market conditions are subject to change. Investing involves risks including the possible loss of capital.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Diversification and asset allocation do not ensure a profit or protect against a loss.

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