Another weak US Employment Report has knocked risk appetite, but a lot of optimism is still baked in. While that raises the prospect of a more serious blow to markets should economic data sour, our sense is that investors’ optimism is largely justified as we don’t think a recession is a likely outcome. So we think the stage is set for some further decent returns from “risky” assets over the next couple of years.
And we see AI enthusiasm, which we expect to grow, as a key driver of outperformance for the US tech sector. That is a key reason why we forecast the S&P 500 to reach 7,250 by the end of 2026, outperforming equity markets elsewhere between now and then.
But we suspect commodities will continue to lag. Meanwhile, cautious central banks and, in some places, growing fiscal concerns, could mean that government bonds don’t fare that well either.