Capital Market Outlook

Summary

• Global equity indexes recorded a fourth consecutive year of double-digit gains in 2026, reaching new all-time highs.
• Government bond yields across major G10 countries have risen to multi-decade highs, with 10-year yields increasing by as much as or more than in the U.S. market.
• The U.S. Treasury began an expanded Treasury securities buyback program in early September 2026 in response to rising rates.
• Commodities are shifting from a tactical inflation hedge to a strategic portfolio allocation driven by AI infrastructure, electrification, energy security, reshoring, & supply-chain investment.
• AI infrastructure deployment requires significant physical inputs including electricity, copper, aluminum, iron ore, industrial gases, & rare earth elements.
• Commodity supply is slow to respond to demand due to geographic concentration, lengthy permitting timelines, limited recycling capacity, & the decade-long process to bring new mines online.
• Geopolitical fragmentation, export controls, & stockpiling efforts are creating persistent scarcity & pricing power for critical materials like gallium, germanium, & graphite.
• Second quarter corporate earnings were boosted by one-off mark-to-market gains on private investments & tariff refunds totaling over $100 billion.
• Adjusted Q2 earnings growth excluding one-offs remained at approximately 31%, while 10 of 11 sectors posted earnings growth.
• Corporate profit margins as a percentage of GDP reached their highest level since 1950, hovering above 22%.
• Full-year 2026 earnings growth is expected to decelerate into the mid-teens in 2027 following a high base in 2026.
• Emerging markets show contained inflation relative to central bank targets, with policy rate expectations stable or lower for countries including China, Malaysia, Thailand, Poland, Brazil, & Mexico.
• Developed markets face higher inflation levels above targets, with central banks in Europe & Japan expected to raise rates.
• The portfolio view remains constructive on risk assets citing improving manufacturing activity, accelerating AI investment, resilient consumers, rising earnings, & ample liquidity.
• The investment strategy maintains an overweight position to U.S. Equities while favoring diversification with meaningful bond allocations.
• Exposure to Industrials, Financials, & Healthcare is being increased while exposure to Consumer Discretionary, Consumer Staples, & Utilities is being reduced.
• The Bloomberg Commodity Index returned close to 25% in Q1 2026, outperforming both Equities & Fixed Income.
• The correlation between commodities & both Equities & bonds has been negative over the trailing five years.
• Gold demand is supported by sustained central bank & exchange-traded fund buying despite earlier volatility.
• Real U.S. GDP growth is forecast at 2.1% for 2026 & 2.2% for 2027.
• CPI inflation is projected at 3.2% for 2026 & 2.0% for 2027.
• The Fed funds rate is forecast to end 2026 at 4.38%.
• The S&P 500 YTD return as of early September 2026 was 13.7%.
• The MSCI Emerging Markets YTD return as of early September 2026 was 24.6%.
• The 10-year U.S. Treasury yield stood at 4.78% as of early September 2026.
• WTI Crude oil prices were $91.48 per barrel as of early September 2026.
• Gold spot prices were $4,429.98 per ounce as of early September 2026.