We believe the equity rally will continue over the coming sixto 12 months. The global economy remains on solid footing, and this means the interest rate hikes by the Federal Reserve and the European Central Bank should not yet be of major concern. Historically, the time to be concerned about market performance after rate hikes is when growth starts to falter, but our expectation for relatively modest tightening should see only a limited impact on growth.
Our base case remains for relatively limited energy disruption and inflation that does not become sufficiently broad or persistent to derail growth. AI-related investment should also remain a powerful tailwind.
Overall, we forecast S&P 500 earnings to grow 25% this year, followed by a 14% increase in 2027. We expect earnings growth in the Eurozone to be 15% for both this year and next. Within Asia, we forecast Japanese corporate profits to grow 12% for FY26, and we expect earnings growth of 72% for the rest of the region this year.
This backdrop of resilient economic activity, broadening earnings growth, and robust AI investment supports further equity market gains, in our view. Investors should maintain diversified core equity allocation, reduce concentrated single-stock positions, and retain targeted exposure to transformational innovation and longer-term investments. Investors with the means and sufficient risk appetite can also consider structured equity participation, yield strategies, and multifactor strategies.
Core global equity exposure
Investors with concentrated single-stock positions should consider broadening exposure across regions, sectors, and investment styles. Given the big differences between the top- and bottom-performing sectors and stocks, concentration can significantly affect portfolio outcomes. Broadening exposure can help portfolios take part in further market gains while reducing company-specific risk. We expect positive returns across the US and most global markets. On a relative basis, we prefer the Eurozone, Asia ex-Japan, and emerging market equities for their more pro-cyclical exposure over the more defensive UK and Swiss markets.
Targeted exposure to transformational innovation and longer-term opportunities
AI remains a powerful investment driver. Global AI-related capital expenditure is expected to reach around USD 900bn in 2026 and approximately USD 1.2tr in 2027. The opportunity extends beyond the largest technology companies to semiconductors and hardware, software, power infrastructure, utilities, and industrials.
Other longer-term opportunities include power and resources, longevity, and health care innovation. Areas of focus include grid resilience, renewables, nuclear power, critical minerals, obesity treatments, oncology, cardio-metabolic conditions, and neurology, where structural demand and technological adoption can support earnings growth over time.
Multifactor strategies
As market leadership broadens, multifactor strategies can provide exposure to a wider range of return drivers. By combining quality, value, momentum, size, and other factors, they can reduce reliance on any single sector, style, or market narrative.
Structured strategies
Structured equity strategies can help investors tailor the balance between participation, protection, and income. Participation-oriented strategies may retain exposure to market gains while incorporating buffers or capital-preservation features. Yield-oriented strategies can monetize equity volatility to generate income, potentially helping investors earn a return while waiting to buy selected assets at lower levels. In both cases, the benefits come with trade-offs, including limited potential gains, loss limitations under certain conditions, issuer-credit risk, liquidity constraints, and product complexity.
