Market Outlook 2026 – Update Q3
by
Felix Ronner
Structural Environment
- Politics: The age of globalisation has given way to geo-economics. Trade and capital flows are becoming politicised, with trade fragmenting along geopolitical lines. The rules governing the global trade architecture are weakening.
- Demographics: Birth rates have recently fallen sharply on a global basis. This can lead to social tensions and in the longer term put additional pressure on trend growth.
- Macro-economics: High indebtedness + adverse demographic developments + low productivity growth = low global trend growth. Among other things, the high level of indebtedness leads to a more unequal distribution (Gini index). This is one of the reasons for shifts in political constellations (polarization).
- Technology & energy: Artificial intelligence (AI) is driving a technological transformation of the global economy, while electrification is driving an energy transformation.
Economy
- The global economy and the financial markets are currently caught between a stagflationary shock resulting from the Iran war and an AI-driven mini-boom.
- Thanks to monetary easing by many central banks and fiscal easing in the largest economies, global growth can pick up moderately. Downside risks are nonetheless considerable.
- Productivity gains in the US remain high and actual growth may rise above trend over the course of the year. Europe is experiencing a slight recovery in growth, but overall economic momentum remains subdued.
- China’s weak domestic demand, but growing production capacities, threaten the industrial sectors in the advanced economies.
- The ECB can raise rates several times. In the US, rate hikes are warranted on macro-economic grounds before the end of the year. However, due to the new FOMC chair and the politicization of monetary policy, this will be delayed. Over the medium term, monetary policy at major central banks will tend to be too accommodative for economic conditions.
- In the longer term, (government-led) investment should increase and support growth.
Influencing factors
- Geopolitical risks (i.e. Iran, Ukraine, Israel, Turkey and Taiwan) have increased and will remain elevated for a prolonged period. This reinforces the de-globalization trend.
- Political risks are elevated, in particular given the rise of EU-/Euro-critical parties in Europe and protectionist measures by the US administration. A renewed escalation of the global trade war – above all between the US and China – would have lasting consequences and would ultimately weigh further on global growth and financial markets. The risk of a technological decoupling between the US and China and an economic bloc building has increased.
- A de-dollarisation and possible decoupling from the West of an enlarged BRICs group seems possible, but this would result in two newly competing currency systems.
- The polarisation between the “West” and the “Global South” can make it more difficult to finance Western debt in the long term – alsodue to the confiscation of state assets.
- Fiscal policy will remain expansionary, and no austerity policy is likely to be pursued.
Market environment
- Given higher nominal growth and the AI-driven technological transformation, equities offer a more attractive risk/reward profile than bonds.
- The outlook for equities is volatile and accompanied by pronounced setbacks but remains fundamentally positive in the long term. Corporate profits can increase and will contribute significantly to a positive performance.
- The trend towards sustainable investments and “green finance” will intensify across all asset classes in the coming years.
- Yields of “safe” bonds such as German Bunds and US Treasuries will mostly trade sideways on a multi-year horizon but move somewhat higher at the long end.
- Carry and roll-down remain important for fixed income investors. Focus should be on short- and medium-term maturities, high-quality assets, and defensive sectors. Exercise caution at the long end.
- We are positive towards the Swiss Franc but see long-term downside risks for the British pound.
- Longer term friendly environment for precious metals.
You can download the detailed market outlook with an update for Q3 2026 here.