Summary
In focus: Cheaper oil part of constructive 2026 outlook
Oil prices look likely to stay low in 2026 due to a persistent supply glut, potentially helping to ease inflationary pressures and allowing central banks to stay on the easing path.
The aggregate effects of weaker oil prices should prove accretive to corporate earnings growth in 2026. This is one of the key positive factors on our radar as we maintain a constructive view entering 2026.
Investment outlook
We maintain a constructive outlook for US equities. As core inflation measures continue to drift toward target, giving the Federal Reserve room for additional rate cuts in 2026, cyclicals and consumer discretionary sectors are likely to benefit most. In Asia Pacific, undemanding valuations coupled with earnings growth continue to position regional equities as a viable choice for diversification. Technology and AI remain a key theme, but other sectors such as financials and Hong Kong property also present opportunities. European equities also appear well positioned in 2026, supported by improving earnings momentum, attractive income characteristics and supportive valuations. Sectors tied to domestic investment, such as utilities and industrials, appear most attractive to us.
In North America, we maintain a constructive outlook for US equities. Leading indicators point to improving momentum in both manufacturing and services, while easier year-over-year comparisons as tariffs annualize should support stronger reported growth. Fiscal tailwinds should also contribute meaningfully as stimulus from the One Big Beautiful Bill begins to flow through corporate tax benefits tied to research and development and capital expenditures.
In Asia Pacific, equities had a standout year in 2025, with the MSCI AC Asia Pacific ex-Japan Index gaining 27%, its best full-year showing since 2017. Entering 2026, as market performance potentially broadens, we continue to see the APAC region as a compelling choice for portfolio diversification. Despite the rally in 2025, regional forward price-earnings valuations remain at a discount relative to the world and particularly the US market. Full-year earnings expansion is also coming through at a high-teen level, with China, South Korea and India among the markets with the fastest 2026 growth expectations.1
In Europe, equities appear well positioned for 2026, in our view, supported by improving earnings momentum, attractive income characteristics, and supportive valuations. On current assumptions, the MSCI Europe Index is forecast to deliver around 10% earnings growth alongside a dividend yield of roughly 3.5%.6 Assuming stable valuation multiples, this points to potential total returns in the low teens, which would represent a solid outcome and broadly align with our expectations for global equity markets. Importantly, European equities continue to trade at a meaningful discount to global peers, providing longer-term valuation support even without a re-rating.
Market review: December 2025
Global equity markets were mixed in December as shifting monetary policy and sector-specific dynamics influenced risk appetite; investor focus on the US Fed’s early-December 25 basis-point policy rate reduction and a split vote underscored ongoing uncertainty around the inflation–growth trade-off, supporting defensive positioning while weighing on interest-rate-sensitive cyclicals. Fed-driven expectations for a more accommodative stance bolstered demand for higher-beta equities early in the month, but renewed caution around technology’s ability to translate heavy capital expenditure into sustainable earnings contributed to intermittent pressure on information technology and related growth names.
Central-bank divergence was evident as the Bank of Japan raised its policy rate and the Bank of England cut rates, reinforcing dispersion in financial conditions across regions and lifting bank shares in Europe and Japan while prompting safe-haven flows in fixed income. Consumer staples and health care outperformed amid mixed macroeconomic data, and materials benefited from firmer commodity price patterns, but softness in select Asian markets reflected concerns about domestic demand and property sector stress.
EndNotes
- Source: “Asia-Pacific Weekly Kickstart.” Goldman Sachs. As of January 3, 2025. The MSCI AC Asia Pacific ex Japan Index captures large and mid-cap representation across four of five developed market countries (excluding Japan) and eight emerging market countries in the Asia Pacific region. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. <strong>Past performance is not an indicator or a guarantee of future results.
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