2026 Investment Outlook
We Got the Beat
Allspring’s investment experts take the pulse on 2026, revealing strategic investment opportunities amid shifting global dynamics.
Market Pulse Check
Ann Miletti and George Bory explore the beat for 2026—from resilient bond strategies to AI-powered equity growth, they unpack key drivers set to shape next year’s financial markets.
Transcript
George Bory: As we look ahead to 2026, fixed income investors are facing a complex landscape. To cut through the noise, we believe investors should focus on earning “real yields” to drive resilient fixed income portfolio returns. Despite political uncertainty, global economies continue to show some signs of strength. But with momentum slowing down, subpar growth is expected next year in many regions around the world as economies adjust to a new global trading regime. Central banks have a big balancing act to perform. The need for accommodation to buffer slower growth while preserving their inflation-fighting credentials is a fine line to walk. We believe interest rates will continue to come down next year, but slowly, as inflation will likely be sticky for the next three to six months. So, what's the good news? We expect bonds to continue to offer good value for investors. Nominal yields are trending lower but remain strongly positive after adjusting for inflation. Led by the U.S. and a few other heavily indebted developed market countries, bond yields remain well above current inflation rates and forward-looking expectations. So, with real yields between 100 and 300 basis points (100 basis points equal 1.00%), we expect yields to be the primary driver of bond market returns for next year. Within bond markets, we expect yield curves to steepen, with front-end rates declining and long-end yields staying elevated due to inflation concerns and a global debt overhang. This should create opportunities in the short-to-intermediate part of the curve for bond investors around the world. So, where are the specific opportunities? We believe high-quality investment-grade corporates have sound fundamentals, emerging market debt provides good cyclical exposure, and U.S. municipal yields—both taxable and tax-exempt—offer attractive relative value for a wide range of bond investors. Overall, in 2026, we believe bond investors should look for solid, inflation-beating returns by focusing on resilient portfolio strategies like extending into short-to-intermediate-maturity bonds, adding global diversification, and making smart security selection decisions.
Ann Miletti: After a year of market surprises, where do we look for growth now? Although a few dominant players have been driving recent gains in equity markets, we believe the next wave of opportunity is broadening. For 2026, we're looking at three key areas. First, sector opportunities might be expanding thanks to what we're calling “AI 2.0.” So far, technology infrastructure providers have been the main beneficiaries of artificial intelligence (AI) adoption. In 2026, we anticipate that moving beyond the tech sector. Broader adoption of AI across industries like health care, manufacturing, and financial services could drive a meaningful new cycle of corporate investment and earnings growth. Second, it's time to take a fresh look at U.S. small- and mid-cap companies. With high valuations for some large-cap stocks being called into question, SMID caps may offer compelling value. Interest rates are expected to fall, and M&A (merger and acquisition) activity is on the rise, putting quality companies with strong earnings and healthy balance sheets potentially back in the spotlight. Finally, we turn to emerging markets. Much of the global hardware build-out for AI began in these countries. Yet, this area of the market remains significantly under-owned and, we believe, undervalued by global investors. With improving fundamentals, even a small shift in overall asset allocation could create a powerful momentum investors wouldn't want to miss. Overall, for 2026, our outlook points to a year of expansion. Opportunities are emerging across various sectors, company sizes, and regions, and we believe that, for investors focused on quality, the stage is set to capture significant market growth.
2026 Investment Outlook
We Got the Beat
The year ahead will have its challenges—but we also expect to see opportunities arise. In our economic outlook, we share our expectations for both the U.S. and international markets, recognizing the distinct paths each region may take.
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Forward P/E ratio is a forward-looking perspective on a stock’s valuation. A lower ratio suggests the stock is undervalued relative to its projected earnings while a higher ratio suggests it is overvalued based on projected growth.
The “Magnificent 7” is composed of the seven largest stocks in the S&P 500: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S.-dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index.
Standard & Poor’s MidCap 400 Index (S&P 400 Index) consists of 400 mid-sized stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.
Standard & Poor’s SmallCap 600 Index (S&P 600 Index) consists of 600 small-sized stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.
Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index.
Free Cash Flow (FCF) is a profitability metric that shows how well a company converts sales into cash and how efficiently it turns revenue into cash flow.
Standard & Poor's 500 Index (S&P 500 Index) consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock's weight in the index proportionate to its market value. You cannot invest directly in an index.
Yield breakevens are estimates of how much yields could rise or spreads could widen before a fixed income investment would see a negative total return over the following year.
Duration is a measurement of the sensitivity of a bond’s price to changes in Treasury yields. A fund’s duration is the weighted average of duration of the bonds in the portfolio. Duration should be interpreted as the approximate change in a bond’s (or fund’s) price for a 100-basis-point change in Treasury yields. Duration is based on historical performance and does not represent future results.
Hedging a bond means using a separate investment to offset the potential risks of the bond.
Credit-quality ratings apply to underlying holdings of the fund and not the fund itself. Standard & Poor's rates the creditworthiness of bonds from AAA (highest) to D (lowest). Standard & Poor's rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories.
Bloomberg U.S. Credit Index contains publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be registered with the SEC. Each qualified issuer’s exposure is then capped on a market-weighted basis at 3%, and the residual is allocated on a pro-rata basis to all remaining constituents. You cannot invest directly in an index.
Basis points (bps) 100 bps equal 1.00%.
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