Steady tariffs, easing policies and widening market opportunities define the path for the year ahead
LOS ANGELES, December 16, 2025 — Capital Group, one of the world’s largest and most experienced investment firms, today released its 2026 Outlook, pointing to a stabilizing global economy, improving corporate earnings, and a widening opportunity set across equities and fixed income.
“In an environment defined by changing market drivers, persistent volatility, and a broadening opportunity set, the case for active management has rarely been stronger. Today’s rapidly evolving landscape — shaped by shifting policies, macroeconomic uncertainty, and accelerating innovation — demands deep fundamental research and a truly long-term perspective," said Martin Romo, Capital Group Chief Investment Officer.
"We’re energized by today’s market dynamics and believe this is a moment for active leadership. Our focus is on helping clients generate returns and achieve their goals in a market that demands agility and insight.
“The global economy has shown resilience with tariffs stabilizing, fiscal stimulus supporting growth, and many banks beginning to ease policy. AI continues to fuel innovation, though valuations remain high. Investors are moving from a tech-heavy market to a more balanced one, where intentional diversification and thoughtful portfolio construction are essential for capturing opportunities across regions, sectors and asset classes. With earnings set to improve and high-quality bonds providing income and diversification, the outlook calls for both optimism and disciplined risk management.”
Macro: Stability gains momentum
As tariff uncertainty fades and new trade agreements take hold, global growth is expected to reaccelerate in the second half of 2026. The U.S. effective tariff rate has stabilized near 10%, encouraging renewed capital spending and supply chain investment. Europe is benefiting from fiscal expansion, while China shows early signs of stabilization and Japan is on track for fiscal expansion.
Governments across major markets have stimulus to support large-scale growth initiatives — from Germany’s €500 billion infrastructure plan to U.S. deregulation and manufacturing incentives — as a newly dovish Federal Reserve begins a rate-cutting cycle that could support housing, lending and consumer activity.
Equity: Market breadth returns
Equity market opportunities have broadened meaningfully since early 2025, with non-U.S. markets1 outpacing both the Magnificent Seven2 and the S&P 500 Index3, and more U.S. stocks joining the market rally. This global opportunity set continues to widen as governments in Europe inject infrastructure and defense spending into their economies and corporate reforms in Japan and other Asian economies boost companies.
Compelling opportunities exist across industrials tied to capital spending, financials potentially benefiting from regulatory shifts, and select sectors such as energy and transportation. The AI investment cycle also remains powerful, with productivity gains spreading well beyond the technology sector. Large tech companies continue to drive demand for advanced chips, power infrastructure and robotics, while businesses from financials to health care deploy AI to improve productivity.
Fixed Income: High-quality bonds regain their role
High-quality bonds are regaining their traditional role as a source of income and portfolio stability. With economic growth prospects improving but labor markets showing signs of weakness, bonds may offer a measure of valuable downside protection amid ongoing uncertainty.
As fixed income portfolio manager Chitrang Purani notes, “Investors still face elevated risks, including labor market weakness and equity market volatility which may impact consumer spending and increase the risk of weaker growth.” Still, ongoing interest rate cuts, easing trade frictions, and fiscal stimulus are expected to keep the economy resilient.
Short-term bonds present attractive alternatives to cash, credit sectors benefit from supportive yields and pro-growth policies, and municipal bonds appear well positioned for a rebound, supported by strong fundamentals and favorable tax treatment. As interest rate cuts progress, active management and thoughtful security selection remain important for capturing opportunities and managing risk across fixed income markets.
Register now for our Outlook 2026 Webinar on December 18 and hear directly from our investment professionals.