As we enter the new year, investment experts from Loomis Sayles forecast a positive horizon for 2026, highlighting the potential for robust earnings growth across both developed and emerging markets. Healthy economic indicators paired with moderating inflation are expected to underpin market vitality.
"We believe the stage is set for robust earnings growth across developed and emerging markets," said Craig Burelle, Global Macro Strategist at Loomis Sayles. This optimism stems from the anticipation of the continued credit cycle expansion and solid corporate fundamentals, which are expected to keep profit margins near multi-year highs.
While there are indications that earnings growth may accelerate in Europe, it remains behind the growth rates of the MSCI Emerging Markets Index and the S&P 500. The overall market landscape indicates slim risk premiums in both credit and equity valuations, suggesting a stable outlook for investors.
"In our view, it seems more likely that fixed income and equity assets can post modest total returns while the economic and earnings backdrop remains supportive," added Burelle.
Several investment themes emerge when considering macroeconomic drivers and key asset classes for 2026. Both fiscal and monetary policies remain unsanctioned enough to encourage investors’ risk-taking behaviors.
The corporate credit market demonstrates strong bottom-up fundamentals, which should limit any potential widening of credit spreads. "We believe corporate credit will provide higher total returns than that of government bonds," noted the analysts, highlighting that while expectations for excess returns on investment-grade credit are modest, the outlook is more favorable for high-yield bonds.
According to Burelle, global currencies are predicted to appreciate, although gains will not reach the levels observed in 2025.
"We expect foreign currencies to appreciate, but we do not anticipate 2025-level gains," he remarked, pointing to a more tempered outlook for international currency markets.
A global bull market is emerging, not so much driven by multiple expansions but rather by impressive earnings. "We see a global bull market led by impressive earnings rather than multiple expansion," Burelle said, which reflects investor confidence amidst an expanding economic backdrop.
However, the potential for risks remains palpable. While the U.S. economy is expected to show resilience, certain economic indicators raise concerns. For instance, productivity gains stemming from AI investment, although beneficial in the long run, could lead to layoffs, but Burelle does not perceive this as an imminent risk.
"Some indications of labor market weakness are evident within the United States, but not enough to derail the expansion, in our view," he stated.
Central banks are expected to play a critical role in shaping the economic landscape in 2026. The Federal Reserve is likely to implement at least one more rate cut in the first half of the year as new leadership emerges. "The composition of the Fed’s board is likely to become more dovish by midyear," forecasted Burelle, indicating a shift that could further bolster economic activity.
The concluding outlook suggests that central bank easing cycles are nearing their end, yet the probability of recession has remained low, allowing for most economies to continue on an upward trend.
"With the probability of recession not elevated, most economies should experience growth rates near their long-run trends," Burelle emphasized, encapsulating the cautiously optimistic sentiment that characterizes the outlook for 2026.