FTI Global Investment Outlook 2026

As 2025 draws to a close, investors are looking forward to opportunities in 2026. The Franklin Templeton Institute’s Global Investment Outlook highlights our views for three key themes that we’re confident will shape the year ahead: Broadening, Steepening, and Weakening.

Broadening beyond US exceptionalism

For more than a decade, US exceptionalism has dominated global equity, fixed income and alternative investment returns. Since the global financial crisis, US-based investments have consistently delivered superior risk-adjusted returns—driven by strong corporate profitability, superior liquidity, and breadth of investment instruments. In recent years, US leadership has been centered around the rising fortunes of mega-capitalization technology stocks.

But we believe a turning point has arrived. While US innovation in technology remains unparalleled, investment opportunities are expanding and we believe they will be more globally diversified.

Several factors underpin this shift. Within the US equity market, small cap, industrial, and financial stocks appear poised for revival. These interest-sensitive sectors should benefit from lower financing costs and a steeper yield curve as the Federal Reserve (Fed) and other central banks continue to ease monetary policy next year. Financials stand to gain from improving net interest margin and expanding capital market issuance.

Outside the United States, the landscape also looks more promising to us. In our view, earnings growth in many emerging market (EM) countries will probably exceed that of the United States, driven by synchronized global monetary easing and currency translation gains. Even Europe, long mired in slow growth, appears slated to reaccelerate thanks to combined monetary and fiscal stimulus. The result could be a cyclical recovery spanning various regions, offering investors greater geographic opportunity and diversification following a decade of US dominance.

Broadening extends to fixed income. As policy rates fall, the appeal of holding cash will likely recede. Many investors will reallocate short-term allocations to longer-duration bonds and credit—public and private. EM debt appears to deliver a second consecutive year of solid returns, in our view. A contributing factor will be a weaker US dollar. But even non-dollar investors should benefit, given falling hedging costs as the Fed eases. Finally, lower EM inflation would pave the way for further rate cuts, reinforcing EM bond performance.

Steeper yield curves ahead

Our second major theme for 2026 is steepening. After nearly a year’s pause, the Fed resumed rate cuts in late 2025 and we expect the Fed to ease further in 2026 as we anticipate US inflation to peak and then resume declining. Other central banks, particularly in EM economies, have been moving in the same direction, while the European Central Bank (ECB) has eased aggressively over the past 18 months.

Meanwhile, strong corporate and government borrowing demand will likely keep longer-term yields elevated. The explosive growth of investment in artificial intelligence and related infrastructure is creating unprecedented demand for capital. And public borrowing appears set to rise sharply across the United States, Europe and China, as governments fund fiscal expansion and industrial policy. Together, these trends suggest long-term yields may not fall as quickly as short rates, keeping yield curves steep.

The result would be a steeper yield curve, where short-term rates fall relative to long-term rates, which has profound investment implications. Yield-curve steepening signals confidence in future growth, and it is particularly supportive for more cyclically sensitive sectors and styles. It also forces investors sitting on large cash holdings to seek opportunity elsewhere or otherwise accept lower prospective cash returns.

Specifically, we believe extending into duration and credit investments offers attractive income potential. Steeper curves will also likely spur flows into alternative assets such as private credit and real estate. The message is clear to us: the era of “cash is king” may be fading, replaced by a renewed search for yield across a wider investment universe.

In short, the steepening of yield curves also reinforces our broadening theme.

Weakening: Ripple effects from the US dollar’s retreat

Our third cyclical theme for 2026 is weakening—specifically, the weakening of the US dollar. After years of strength, the dollar fell roughly 10% in 2025 and is likely to decline next year as well. Several forces are at play: ongoing Fed rate cuts, moderating US growth, and shifting global capital flows toward higher-yielding and undervalued non-US assets.