2026 midyear outlook: A world disrupted? Resilience endures.
Key takeaways
Economic data and corporate results suggest the global economy remains resilient despite a host of events that could potentially disrupt global economies in an increasingly fragmented world.
The AI investment boom has led to strong earnings growth, led by the technology sector. Data centre demand for chips and power is expected to support semiconductors and hardware companies.
We expect the global economy to re-accelerate later in the year, but that’s dependent on the timing of any resumption in energy flows through the Strait of Hormuz.
While our 2026 annual outlook argued that firmer global growth would favour non-US stocks and weigh on the US dollar this year, recent events have delayed — but not curtailed — this story. In a world undergoing immense disruption, we believe resilience endures and provides a favourable investment environment. Our midyear outlook reflects two key themes:
- A world disrupted. In the first half of the year, the global economy contended with various disruptive forces, including the rise of artificial intelligence (AI), geopolitical fractures, the closure of the Strait of Hormuz, and an upset of energy and commodity supplies.
- Resilience endures. Private-sector leverage has fallen since the 2008 Global Financial Crisis, in our analysis. Meanwhile, previous rate cuts in the US and UK, along with looser fiscal policy in Europe and Japan, are supportive of a measured re-leveraging through stronger investment and spending, in our view.
For a quick take on the key themes shaping markets now — from global resilience and AI-driven growth to the US dollar and emerging markets — and where we see investment opportunities, watch our midyear outlook video below.
Transcript
Resilience and rebalancing. That was our theme at the start of the year.
Resilience meant that we believed the global economy and financial markets had enough strength to push forward, regardless of what might be thrown at them. Rebalancing meant we expected market participation would broaden beyond US growth stocks.
What are our views now?
As we approach the midpoint of the year, we are affirming those views.
The global economy has remained resilient, even in the face of geopolitical conflict.
Resilience has endured
And while the year began with a broad market advance, leadership narrowed as uncertainty picked up.
But we continue to believe in rebalancing.
Geopolitical risk appears to have peaked. Oil prices, interest rates, and inflation expectations also look to have reached their highs. That creates a more supportive macro backdrop.
A more supportive macro backdrop
It is one that could allow the Federal Reserve to reengage its rate-cutting cycle, which may benefit non-US dollar assets, as well as smaller capitalization and cyclical stocks globally.
- Non-US dollar assets
- Smaller capitalization stocks
- Cyclical stocks
The global economy has held up, and we continue to see a path toward reacceleration later in 2026.
To learn more about what we expect in the second half, and the risks that could alter that outlook, explore our 2026 Midyear Investment Outlook.
Investment themes to watch
The global economy is evolving, and with it, the investment landscape. The themes we believe will matter most for investors in the back half of 2026 focus on market resilience, the US dollar, emerging markets, AI, and alternatives for income and diversification.
Market resilience
Most major assets have delivered positive returns so far in 2026 after a tumultuous March.1 We take this as a reminder of the value of staying invested in the face of troubling news flows. The pattern of returns has shifted since February. US stocks have been performing better than we anticipated in our 2026 annual investment outlook.
Investment opportunities: We believe market performance for the remainder of the year is highly dependent on events in the Middle East. Resumption of traffic through the Strait of Hormuz will likely be met by a strong cyclical bounce, in our view, led by emerging market (EM) and European markets. We believe US stock and bond markets will likely perform well, too, but lag in cyclical areas such as materials and industrials.
US dollar is likely to continue its bout of weakness
A core tenet of our 2026 annual investment outlook was that the US dollar would weaken this year. We maintain that view. In our analysis, the dollar remains one of the more overvalued currencies on most measures. The fact that it hasn’t strengthened much in the face of the recent energy shock is telling.
Investment opportunities: If we’re correct and the US dollar weakens this year, we expect equities in non-US markets, especially EM, to perform well.
Emerging markets look well-positioned
A weaker US dollar and improving growth dynamics support our preference for emerging markets (EM). Select EM countries such as Taiwan and Korea are benefitting from AI hardware scarcity, in our analysis. EM assets should benefit from global reacceleration — some from rising commodity prices, others from exposure to the AI theme — and many still offer attractive valuations, in our view.
Investment opportunities: Whether it is stocks, bonds, or currencies, we remain positive on EM assets.
AI is still a major market force
The AI story remains a dominant theme for both markets and many economies around the world. We don’t see that changing soon. The impact and best way to get exposure to the theme, however, appears in our view to be changing. We prefer exposure to semiconductors and hardware players and are wary of software companies.
Investment opportunities: We continue to see opportunities emerging from the AI theme and expect it to help power EM returns and continued earnings growth in exposed sectors, such as semiconductors, data centre infrastructure, energy, and commodities.
Look to alternative sources of income and diversification
Though we think the rise in inflation will be limited and short-lived, we firmly believe that inflation won’t return to below target levels in most developed markets soon. We believe assets, such as real estate and private credit, may offer both income and diversification advantages in a more inflationary world.
Investment opportunities: We believe that real estate and private credit, such as direct lending, bank loans, and AAA-rated collateralized loan obligations (CLOs), make sense.
Latest insights
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.
The opinions expressed are those of the author, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward- looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
