CONTRIBUTORS
Stephen Dover, CFA
Chief Market Strategist
Head of Franklin Templeton Institute
Lawrence Hatheway
Global Investment Strategist
Franklin Templeton Institute
Executive summary
- In 2026, we foresee broadening opportunities across global capital markets, driven by attractive profits growth outside the United States and by global monetary policy easing.
- Yield curves look poised to steepen, and the US dollar will remain weak.
- We believe emerging debt and equity markets, European equities, and US smaller-capitalization stocks should lead the way in 2026. Still, US equity returns, including in the leading information technology sector, should remain solid, in our view.
- Within private markets, commercial real estate debt, infrastructure and secondary offerings of private equity are our preferred areas.
- Longer term, the key driver of returns remains innovation, above all in the information technology sector, private investments and digital finance.
- That all said, we think a health warning is in order. We have entered an era of big and intrusive government, which risks lowering returns and increasing risk across capital markets over the remainder of this decade.
Introduction
As 2025 draws to a close, it is time to turn our attention to 2026 and beyond. In this global outlook, we highlight our top investment ideas, both for the coming year and over the longer run.
We encapsulate our 2026 (cyclical) and our long-term (secular) investment analysis into two separate categories of three themes each.
For 2026, our cyclical themes are: Broadening, Steepening and Weakening. Broadening reflects our conviction that investment opportunities across regions and asset classes are expanding. Steepening refers to yield curves, where falling short-term interest rates will incentivize investors to move out of cash holdings and into risk assets, including equities, credit and fixed income duration. Weakening regards the US dollar, which bodes well for emerging debt and equity markets, and is also an important development for portfolio management and hedging strategies.
As we elaborate in this global outlook, our cyclical themes intersect—akin to Venn-diagrams—with reinforcing implications across investor portfolios.
Turning to the longer term, we believe the following themes will dominate the coming half-decade: The Age of Intelligence, the Mainstreaming of Private Markets and An Era of Big Government. Each has profound implications for strategic investment decision-making.
In this global outlook, we will first consider the short-term outlook for 2026. We then turn to the long-term view. We conclude with the risks to our views and a summary of the key investment implications.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
The allocation of assets among different strategies, asset classes and investments may not prove beneficial or produce desired results.
Equity securities are subject to price fluctuation and possible loss of principal. Small- and mid-cap stocks involve greater risks and volatility than large-cap stocks.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Sovereign debt securities are subject to various risks in addition to those relating to debt securities and foreign securities generally, including, but not limited to, the risk that a governmental entity may be unwilling or unable to pay interest and repay principal on its sovereign debt.
Investments in many alternative investment strategies are complex and speculative, entail significant risk and should not be considered a complete investment program. Depending on the product invested in, an investment in alternative strategies may provide for only limited liquidity and is suitable only for persons who can afford to lose the entire amount of their investment.
Currency management strategies could result in losses to the fund if currencies do not perform as expected.
Investing in privately held companies presents certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
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