Investing in 2026: The Global Economic Outlook

January 13, 2026

“U.S. stocks had a stellar 2025, but global markets stole the show” is how John Towfighi, a markets reporter for CNN Business, describes last year’s overall performance of global investments. He quotes Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, as saying in December that “[o]verweighting the U.S. has served global investors well the past 15 years.” However, she continues, “we believe shifting geopolitical, monetary and fiscal policy regimes amid technological upheaval and the constraints of developed world debt are creating a need for diversification beyond U.S. stocks and bonds for long-term investors.”

What do NCTR systems’ chief investment officers (CIOs) and the experts from NCTR’s Commercial Associate members think? To find out, be sure to register now for NCTR’s Global Economic Forum, a members-only, FREE annual, virtual event to be held February 4, 2026, from noon to 3:30 p.m. (ET). Hear the perspectives of investment leaders in the public pension space as they discuss current geopolitical events and what is being projected in the markets at the macro level and for the U.S., Euro, Asia Pacific, and Emerging Markets.

While the U.S. stock market just produced three consecutive years of double-digit gains — rising 24 percent in 2023, 23 percent in 2024 and 16.39 percent in 2025, which has only happened six times since the 1940’s — the MSCI All Country World ex-USA index gained 29.2 percent in 2025, almost double the 2025 U.S. Stock market gains. [The MSCI All Country World ex-USA index is a benchmark that captures large and mid-cap representation across 22 of the 23 Developed Markets (DM) countries, designed to measure the combined equity market performance of developed and emerging markets countries, excluding the United States.]

“That gain comes despite concerns about tariffs, geopolitical turmoil, nerves about a bubble and the longest government shutdown in history,” notes Sophie Baker, the international news editor for Pensions & Investments (P&I). Furthermore, she says that chief economists and market strategists cannot agree on their outlooks for the coming year. There is “little consensus on what 2026 may bring, with a variety of risks cited by senior executives at some of the world’s largest money managers,” she notes. All the more reason for NCTR members to listen to their own community’s CIOs and their own investment consultants and advisers, who can help put any lack of consensus into a perspective that reflects public pension plans’ often-unique challenges. This is what makes the NCTR Global Economic Forum so valuable.

2025

But first, a review of 2025 by CNNs John Towfighi, who points out that the artificial intelligence (AI) boom “benefited markets in Asia, where tech companies and chipmakers have seen surges in demand.” For example, South Korea’s Kospi index soared almost 76 percent in 2025, he notes, and posted its best year since 1999. Japan’s Nikkei 225 gained 26 percent, driven by gains in tech companies and chipmakers. Finally, in Taiwan, he underscores that shares in Taiwan Semiconductor Manufacturing Company (TSM) gained 46.54 percent last year and hit record highs, while shares of China-based Alibaba “soared” 75.81 percent “as the company embraced AI and launched its own chatbot,” he stressed.

The CNN Business reporter also notes that in Europe, markets “received a boost from plans for government spending on defense and improved prospects for economic growth.” European stocks “rallied in early 2025 as the German government enacted historic reforms to boost spending on defense,” he points out, with German manufacturer Rheinmetall gaining 154 percent.

Meanwhile, improving outlooks for the economies in Greece, Spain and Poland benefited those countries’ markets, Towfighi says, and European banks like Santander and Deutsche Bank “also had standout years, each rising about 126 percent and helping lift markets,” he points out. In addition, the UK benchmark Financial Times Stock Exchange (FTSE) 100 index gained 21.51 percent and had its best year since 2009.

Finally, Towfighi emphasizes that a “weaker U.S. dollar also provided a tailwind for international stocks” in 2025. For example, the U.S. dollar index, which measures the dollar’s strength against six major currencies, fell by roughly 9.4 percent in 2025, its worst year since 2017. And when the dollar weakens and other currencies strengthen, “investments denominated in those currencies become more valuable when converted back into dollars,” he explains.

Thus, “[h]eading into 2025, U.S. stock valuations were already relatively expensive compared to the rest of the world, creating an incentive for investors to look for returns in different markets,” Towfighi emphasizes.

2026

Looking ahead, what does 2026 portend? CNN Business says that for U.S. investors, “analysts say the dollar will be key to gauge international stocks’ returns” and if it continues to weaken, foreign stocks may continue to “have the wind at their back.”

Nevertheless, although international markets had a year of outperformance, “some investors say the fundamentals still support the United States,” Towfighi reports — stressing that Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, says they “still favor the U.S. first and international second.” Sameer believes that “the dollar will stabilize, which will help to dampen the advantage for emerging market equities,” whose “extraordinary outperformance” was called “[o]ne of the biggest and most underappreciated surprises of 2025” by Morgan Stanley Wealth Management ‘s CIO, Lisa Shalett, noted above.

In summary, “Wall Street remains optimistic about the outlook for U.S. stocks as corporate profits have been resilient, and there is optimism that AI will continue to drive earnings growth,” according to Towfighi.

What does P&I’s reporting say about 2026? As noted at the outset of this piece, they see little consensus on what 2026 may bring, with a variety of risks cited by senior executives at some of the world’s largest money managers.

“Among those risks are concerns over the potential for an artificial intelligence-driven economy to continue and the impact of political noise on markets — where sources had different views and focuses,” says P&I’s international news editor, Sophie Baker. “But one point where they did agree was that emerging markets are set to be a bright spot in an otherwise murky economic landscape,” she underscores.

Specifically, Brian Levitt, chief global market strategist at Invesco, thinks “[t]he outlook for the global economy is positive,” Baker reports. He says that “[o]ur expectation is that the global economy emerges from what we would characterize as a midcycle slowdown” and the recovery “will be driven by ongoing resilience in the private sector as well as fiscal support in Europe and China and monetary policy easing in the U.S.” Levitt stresses that “we view this as a recovery in the global economy toward trend-like growth (not particularly high or low) and not a move to a new higher sustained level of growth.”

Also, Eric Lascelles, chief economist at RBC Global Asset Management, says economic growth “should manage a moderate acceleration and may pleasantly surprise” in 2026. Furthermore, he believes the “tariff headwind” should be “substantially absorbed,” and other important factors are set to have an impact, including rate cuts, further fiscal stimulus, low oil prices, a positive stock market wealth effect, further growth in AI capex, and the beginning of an AI-driven productivity boost.” (“AI capex” is short for AI capital expenditures, referring to the very large upfront investments made by tech firms and governments to build the physical infrastructure needed for Artificial Intelligence.)

On the other hand, Baker points to Kristina Hooper, chief market strategist at global manager Man Group — who she notes joined the firm from that role at Invesco in 2025 — who thinks “this is a very difficult year” to have a lot of clarity regarding an outlook. Hooper goes on to say that “[t]here’s definitely a lot of uncertainty and unpredictability — more so for 2026 even than we saw for 2025.” As an example, she cites the potential for the U.S. Supreme Court to roll back some of the Trump administration’s imposed tariffs, Baker reports.

What about a recession in 2026? Again, there is a split in views, P&I stresses. For example, the Man Group’s Hooper does not “see how (the U.S.) can weather the kind of headwinds it is facing and not go into a modest recession” in 2026 — particularly if AI-related spending slows. She cites Harvard economist Jason Furman’s point that stripping out the huge investments in artificial intelligence-related data centers and technology in the first half of 2025 would bring U.S. GDP growth to about 0.1 percent, explaining that 92 percent of growth was related to AI capital expenditure in that period.

But Paul Eitelman, global chief investment strategist at Russell Investments, disagrees. He says, “the interplay of fiscal expansion and policy support, as well as new defense and security priorities will be key to watch in the year ahead.” In fact, Eitelman says that, overall, “we see 2026 as a year of resilience and reacceleration rather than recession.”

In summary, J.P. Morgan projects a 35 percent chance of both a U.S. and a global recession in 2026, citing “sticky” inflation and a slowing labor market as concerns. “Overall, the market environment remains fragile, and investors must navigate a landscape where risk and resilience coexist,” according to Fabio Bassi, head of Cross-Asset Strategy at J.P. Morgan. RSM US is slightly more optimistic, projecting a reduced 30 percent probability of a recession due to fiscal policies, Fed rate cuts, and AI infrastructure spending, expecting above-trend growth.

How about market volatility? As with the likelihood of a recession, P&I suggests a lack of consensus. However, Andrew Jackson, head of investments at Vontobel, says “[w]e anticipate that volatility will persist in 2026, driven by factors such as unpredictable geopolitical risks, stretched U.S. tech valuations, the ongoing pause of U.S. exceptionalism, concerns over the Federal Reserve’s independence, and persistent inflationary pressures in the U.S.”

Fidelity Investments, a valued NCTR Commercial Associate member, also points to policy uncertainty, warning ongoing trade tensions and tariffs could lead to market instability, affecting investor confidence. But while Morningstar warns that the potential of concentration in large-cap technology stocks may lead to greater price sensitivity and increased volatility, the general consensus seems to favor the view that while there are risks, the potential for significant downturns – and resulting volatility — is lower compared to previous years.

Then there is the fear of an “AI Bubble.” Yet again, P&I says sources are split on whether these technology stocks are in a bubble. For example, “Artificial intelligence is not in a bubble,” Invesco’s Levitt is quoted as saying, observing that “valuations of the Nasdaq 100 companies are not in the same vicinity as in the late 1990s” and that a company such as Nvidia “is not trading at extreme valuations, given the current and potential demand for its products.”

Instead, Levitt notes that well-funded businesses have been making significant investment, “creating insatiable demand for semiconductors and data centers,” and the markets “will increasingly turn attention from expectations of returns on the investment to actual returns on investments,” he said, adding that, as in all technological advancements, there will be winners and losers.

But P&I also points out that Northern Trust Asset Management’s (NTAM) Chief Investment Strategist Gary Paulin says AI’s “potential bubble territory” is still a concern. While lasting worries will exist over developed economies’ debt and deficits, “the big issue remains AI, and principally whether it’s a bubble,” he is quoted as warning. He says, “[h]aving lived through the previous bubble, I am concerned by similarities of concentration, extreme valuations, circular finance, leverage, and over-spending.” But he also says there are “sufficient differences to suggest we are still early in this boom phase.”

For example, he said market concentration is matched with higher earnings growth concentration, and technology stocks are “materially cheaper than in 2000 and are much higher quality.” Also, he stresses that “[w]hile leverage is a concern for some, it’s really only an issue if collateral/residual values are falling.” But “they’re not,” he also underscores.

So — while there may be some similarities to previous bubbles, with markets expensive and pullbacks expected — there remains one “glaring difference” between now and then, at least in public markets, “and that is we haven’t yet seen a mass escape of reality,” Paulin has said, referring to John Kenneth Galbraith’s description of behavior during speculative financial bubbles, P&I points out.

Whether economists think AI is in a bubble or not, “they’ll be keeping a close eye on it,” P&I emphasizes, because — with the U.S. equity markets “heavily reliant on AI-driven gains, a correction in this sector could have broader economic impacts,” warned Alex Joiner, chief economist for IFM Investors.

Equity markets need to broaden beyond those sectors that are driven by AI in order to be sustained, he added. “Fixed income offers limited upside, while real assets — especially unlisted infrastructure — continue to be seen as a defensive play against uncertainty,” P&I quotes Joiner as saying.

Last but not least, geopolitics will continue to play a role, P&I stresses, noting that some economists and strategists think political developments will “remain on the risk list.” However, once again, they differ as to whether geopolitics is a key risk — or whether it should be focused on individual nations’ domestic politics.

For example, IFM’s Joiner said “the dynamics of the U.S. political cycle, where midterm elections and potential fiscal incentives may shape policy direction and market sentiment” was one development that could influence the economy in 2026. P&I also said he warned that leadership transitions — including Jerome Powell’s tenure as chair at the Federal Reserve ending in May — “carry the potential to shift policy priorities and affect confidence.”

But RBC GAM’s Lascelles, however, focused more broadly on geopolitical risks, noting they “are significant given continued war in Ukraine, fragile peace in the Middle East, tension between China and Japan, and the renewed U.S. engagement with Central and South America.” Also — in addition to tensions between the U.S. and China regarding tech controls — cybersecurity, Taiwan Strait incidents, and competition in green tech and AI “all carry clear and present risk to the fragile status quo between these two countries,” said Marie Antelme, economist at emerging markets specialist Coronation Fund Managers. P&I also says she is concerned with European political fragmentation, with rising populism complicating fiscal growth and policies, “raising reasonable concerns about sustainability in key economies.”

Where P&I did find consensus was regarding emerging markets’ potential as the “one bright spot that economists and strategists agreed on” for 2026, with the MSCI Emerging Markets index gaining 33.6 percent in 2025 vs. 22.3 percent for the MSCI ACWI (All Country World Index), a major global equity index that captures large and mid-cap representation across both Developed Markets (DM) and Emerging Markets (EM) countries, widely used as a benchmark for global stock market performance.

“The biggest opportunity is in the emerging markets,” Invesco’s Levitt is quoted by P&I as saying, pointing out that, historically, “Fed easing and a weaker U.S. dollar have benefited emerging markets equities more than any other region and most other asset classes.” Vontobel’s Jackson also says emerging markets’ fixed income “should perform well in 2026.”

Why? Emerging markets — as well as countries such as the U.K., Canada and Australia — have what P&I refers to as “a proliferation of valuable commodities in the ground.” These could benefit from what NTAM’s Paulin dubbed “value transfer from the world of ideas to things.” That is, “the scarcity in the AI value chain may not be chips so much as concrete — the raw materials needed to build the infrastructure.” If this is indeed the case, P&I underscores that “certain companies and regions will see growing demand in line with the need for commodities they might be sources for.”

All in all, then, there is certainly much to discuss and understand as far as the global economic outlook for 2026 is concerned. Particularly for public pension plans — whose investment earnings are their largest source of revenue, consistently providing 60 percent to 65 percent of the funds needed to pay benefits over the long term — understanding, appreciating, and capitalizing on U.S. and global markets is critical.

That is why NCTR’s annual Global Economic Forum is so important, providing invaluable perspectives on navigating today’s market challenges and opportunities.

Discussion highlights will include:

Implications for asset allocation and investment strategy
Impact of long-term investment returns and for long-term investors (i.e. public pension plans)
AI-impact on companies, labor market, and asset class returns
Geopolitical risks
Past investment winners and prospective rising champions
Fed and global central banks divergence in policy actions
Deficits and inflation – constraints on policy, the economy and markets
Outlook for U.S., European, Asia Pacific, and Emerging Markets

View the excellent speakers here, and register today!