The US remains the core engine for global equities, and we expect AI to remain a key driver of overall equity performance. We forecast S&P 500 earnings per share to reach USD 310 in 2026—up 12% year over year—and see the index advancing to 7,700 by year-end.
But we also expect the rally to broaden, as historical innovation cycles show a performance handover from the enablers of a new technology to those that are able to generate revenue from it. We believe that the leadership of the AI trade will broaden, from the semiconductor firms in the enabling layer that have led the rally in recent years, toward the companies in the application layer selling AI solutions to consumers and businesses. We also expect fiscal expansion, loose financial conditions, and AI productivity gains to lift other sectors that have lagged over the past year.
Health care
The US health care sector has emerged from a period of policy uncertainty, and we expect improved performance supported by M&A activity and strong demand from aging demographics. We like select companies with exposure to large and growing markets such as obesity, while the sector’s less correlated earnings profile could prove valuable if economic growth slows.
Utilities
We also favor US utilities, with the sector benefiting from AI-driven power demand and ongoing digital infrastructure buildout. Electricity demand growth—driven by AI data centers and industrial manufacturing—is accelerating, prompting increased capital investment in power infrastructure and supporting robust earnings growth. With more than half the sector by market cap having significant leverage to these trends, we see a compelling combination of growth and defensive income potential.
Banks
Banks—in the US and globally—are increasingly well-capitalized and profitable, with return on equity rising to 11.5% in 2025 and further gains expected. Supported by favorable net interest margin trends, improving loan growth, and strong capital market activity, we think the sector offers both attractive valuations and potential for shareholder returns. Any impact from the potential one-year cap on credit card interest rates should be temporary and manageable, in our view.
Consumer discretionary
This sector is likely to benefit from an environment of growing wages, tailwinds from the One Big Beautiful Bill Act, and potential policy actions to support lower- and middle-income groups linked to the “affordability” agenda.
Opportunities beyond the US
Beyond the US, we also see opportunities in Europe, Japan, China, and emerging markets.
Europe
After three years of stagnant earnings, profit growth should accelerate to 7% in 2026 and 18% in 2027, driven by recovering goods spending, disciplined cost control, and supportive European Central Bank policy—including the 200bps in rate cuts already delivered. Germany’s plan to invest over 20% of GDP in infrastructure and defense strengthens the fiscal outlook and boosts capital investment. Banks are healthier, with rising loan growth, asset repricing, and fee income, while Eurozone equities offer meaningful exposure to power and resources, and longevity. Within Europe, we favor industrials, technology, and utilities, as well as “European Leaders” positioned to benefit from both policy and structural growth.
Japan
The House of Representatives election scheduled for early February could be positive for equity markets if the Liberal Democratic Party secures a majority, boosting the stability of the Takaichi administration. Beyond the election, additional catalysts include a shift to “good” inflation driven by a turnaround in real wages. Further progress in equity market reforms—such as in corporate governance (due around June) and the Topix (October)—should also increase incentives for companies to enhance corporate value.
Quant exposure
Investors can also benefit from including quantitative strategies as part of their equity allocation. The main advantages of quantitative strategies are: (1) diversification, as the main performance drivers are only weakly linked to macro fundamentals, if at all, and (2) their unsentimental nature, which leaves them unaffected by common behavioral biases often displayed by individual investors. Quant strategies can also be viewed as a natural framework to exploit recent advances in machine learning and AI.
