Schroders has struck a cautiously optimistic tone on global markets in 2026, backing equities while warning that high valuations in the US and growing structural risks call for greater diversification across portfolios.
Patrick Brenner, chief investment officer for multi-asset at Schroders, said the firm continues to see a low risk of recession in the US, supported by ongoing fiscal stimulus, falling interest rates and a resilient labour market.
“From a cyclical standpoint, the economic environment remains benign,” he said, adding that the current “low firing, low hiring” dynamic in the labour market points to continued economic stability.
Despite this supportive backdrop, Schroders’ main concern is the level of equity valuations, particularly in the US. In response, the firm has diversified its long-standing overweight position in global equities by adding exposure to value stocks outside the US.
The move is designed to manage risk while retaining a modest overweight to US equities, which continue to benefit from strong earnings momentum and accommodative policy.
Government bonds remain a weak spot in Schroders’ outlook. Brenner said US bond markets “offer little value”, with significant rate cuts already priced into the front end of the curve and inflation expectations remaining muted.
Ownership of UK government bonds drops to lowest level since 1996
closer to the end of their easing cycles. As a result, the firm remains underweight duration and negative on government bonds overall, although it holds a more constructive view on UK gilts, where fiscal risks are seen as largely priced in.
In credit markets, Schroders is neutral, citing tight spreads and limited margin for error. While the macro backdrop remains supportive, the firm is wary that rising issuance linked to AI-driven capital expenditure and merger activity could weaken market technicals into 2026.
Within this, it prefers European investment-grade credit to US counterparts, where valuations are particularly stretched.
Commodities are one of the brighter spots in Schroders’ multi-asset outlook. The firm has turned positive on the asset class, driven by an improved view on energy and industrial metals, and continues to favour gold as a key portfolio diversifier.
Brenner said gold’s appeal remains strong in an environment marked by policy uncertainty, fiscal fragility and growing investor doubts about the long-term role of US Treasuries and the dollar.
Schroders has also upgraded its stance on oil, citing supply constraints and upside risks to prices.
Regionally, Schroders remains positive on US equities but has adopted a more cautious tone elsewhere.
It holds neutral positions in the UK, Europe ex-UK and Japan, pointing to a mix of reasonable valuations, currency sensitivity and policy uncertainty.
Emerging markets have also been downgraded to neutral, reflecting a more balanced approach after concerns over rising concentration risks in Chinese technology stocks.
Looking beyond the immediate cycle, Brenner warned that while near-term risks appear contained, longer-term vulnerabilities are beginning to build. He highlighted concerns around market concentration and what he described as “AI circularity” – the growing interdependence between technology investment, earnings expectations and market leadership.
“For now,” he said, “we balance our positive view on equities with diversifying positions in international value stocks, gold and oil, alongside an underweight in duration and the US dollar.”