Fixed Income: A strong case for bonds
As economies show resilience, selectivity and care remain critical for bond investors figuring out where to take duration risk and how to think about returns.
1 December 2025
2026 Annual Investment Outlook
We believe the market can continue to rise in the new year, and we expect new opportunities to be unlocked as market leadership evolves.
Market outlook
2025 was marked by uncertainty, yet markets delivered strong returns. As we look ahead to 2026, we believe the conditions are in place for the market advance to continue.
Economic reacceleration
We believe lower interest rates in the US and higher government spending in Europe, Japan, and China should help lift the global economy out of a mid-cycle slowdown.
Investment implications
A pickup in global economic activity in the upcoming year could unlock value across a wider range of areas, including non-US markets, smaller-cap stocks, and cyclical areas in the US.
Optimism for the year ahead
We’re confident in the private sector’s resilience and encouraged by the direction of global monetary and fiscal policy. We believe there are opportunities to rebalance portfolios as a pickup in global activity could unlock value across a range of areas.
Transcript
Speaker: Ben Jones, Global Head of Research, Strategy & Insights:
00:00:00:11 - 00:00:02:06: Our 2026 Annual Investment
00:00:02:06 - 00:00:02:55: Outlook explores
00:00:02:55 - 00:00:06:05: two key words resilience and rebalancing.
00:00:06:05 - 00:00:07:17: First, we're confident
00:00:07:17 - 00:00:09:16: in the private sector's resiliency.
00:00:09:16 - 00:00:12:19: We saw it absorb economic shocks in 2025
00:00:12:19 - 00:00:14:31: and expect it to be supported by policy
00:00:14:31 - 00:00:16:19: easing in the United States
00:00:16:19 - 00:00:16:53: and fiscal
00:00:16:53 - 00:00:19:56: support across Europe, China and Japan.
00:00:19:56 - 00:00:20:34: In short,
00:00:20:34 - 00:00:21:30: we believe the market
00:00:21:30 - 00:00:24:46: can continue to advance in 2026.
00:00:24:46 - 00:00:26:26: However, market leadership
00:00:26:26 - 00:00:27:53: may not look the same.
00:00:27:53 - 00:00:30:04: Which brings us to rebalancing.
00:00:30:04 - 00:00:32:04: We expect to see more balanced
00:00:32:04 - 00:00:34:00: market leadership with non-U.S.
00:00:34:00 - 00:00:35:06: markets, small cap
00:00:35:06 - 00:00:37:17: stocks and cyclical areas in the US
00:00:37:17 - 00:00:38:38: potentially benefiting
00:00:38:38 - 00:00:41:11: from a pickup in global activity.
00:00:41:11 - 00:00:42:28: Overall, we're optimistic
00:00:42:28 - 00:00:44:04: as we enter 2026
00:00:44:04 - 00:00:44:52: thanks to the private
00:00:44:52 - 00:00:46:19: sector's resiliency,
00:00:46:19 - 00:00:47:32: and we see opportunities
00:00:47:32 - 00:00:48:59: for investors to rebalance
00:00:48:59 - 00:00:49:42: as the importance
00:00:49:42 - 00:00:52:52: of diversification returns to the fore.
00:00:52:52 - 00:00:54:06: Explore the full story
00:00:54:06 - 00:00:55:56: and our 2026 annual Investment
00:00:55:56 - 00:00:58:26: Outlook, resilience and rebalancing.
Disclosures (on screen text only):
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.
Important information
This marketing communication is for professional clients in Continental Europe (as defined below), Bulgaria, Croatia, Czech Republic, Hungary, Kosovo, North Macedonia, Poland, Romania, Slovakia and Slovenia, Dubai, Ireland, the Isle of Man, Jersey, Guernsey and the UK and qualified clients/sophisticated investors in Israel. It is also for Middle East clients, exempt investors and accredited investors/non-natural qualified investors, or investors of another similar categorisation (as the case may be) in your relevant jurisdiction. It is not intended for and should not be distributed to, or relied upon, by the public.
For the distribution of this webinar, Continental Europe is defined as Austria, Belgium, France, Finland, Greece, Luxembourg, Norway, Portugal, Denmark, Germany, Italy, Liechtenstein, the Netherlands, Spain and Sweden.
All data is provided as at 5th November 2025, sourced from Invesco unless otherwise stated.
By accepting this material, you consent to communicate with us in English, unless you inform us otherwise.
Views and opinions are based on current market conditions and are subject to change.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
Information for clients in Israel: This material may not be reproduced or used for any other purpose, nor be furnished to any other person other than those to whom copies have been sent. Nothing in this material should be considered investment advice or investment marketing as defined in the Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 1995 (“Investment Advice Law”). Neither Invesco Ltd. nor its subsidiaries are licensed under the Investment Advice Law, nor does it carry the insurance as required of a licensee thereunder.
Issued by:
Invesco Management S.A., President Building, 37A Avenue JF Kennedy, L-1855 Luxembourg, regulated by the Commission de Surveillance du Secteur Financier, Luxembourg.
Invesco Asset Management Limited, Index Tower Level 6 - Unit 616, P.O. Box 506599, Al Mustaqbal Street, DIFC, Dubai, United Arab Emirates. Regulated by the Dubai Financial Services Authority.
Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom. Authorised and regulated by the Financial Conduct Authority.
Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich, Switzerland.
©2025 Invesco Ltd. All rights reserved.
Investment themes to watch
Across the world, we see some key themes that present compelling investment opportunities in 2026. Explore the details below.
We anticipate economic growth to pick up modestly, driven by central banks cutting interest rates and governments providing targeted stimulus. But even a modest improvement in growth can have meaningful implications for financial markets.
A reacceleration in economic activity, supported by monetary and fiscal policy, creates an opportunity for investors to diversify — which may be particularly welcome given investor concerns that tech stocks may be expensive and that they’ve been dominating the returns of traditional, market-cap-weighted indexes.
Investment opportunities: In our view, diversification opportunities include investing in cyclical sectors as well as smaller capitalization and value-oriented stocks.
We expect central bank easing to broadly continue in 2026, but with some important points of divergence.
- Some European central banks appear close to, or at, the ends of their easing cycles. We believe the European Central Bank is unlikely to cut further next year.
- Any further easing from the People’s Bank of China is likely to be limited, in our view, but other emerging market nations have more room to cut rates further.
- The US Federal Reserve has some catching up to do. Absent a resurgence in the jobs market, we expect around three to four cuts in 2026.
- The Bank of Japan is the one major central bank that we expect to raise rates (likely twice) before the end of 2026.
- We expect this divergence to continue weakening the US dollar. We see scope for strength in the euro, Japanese yen and EM currencies.
Investment opportunities: In our view, dollar weakness should support emerging market and commodity-related assets, and improved global activity should offer some support to industrial commodities, too. Precious metals also tend to benefit from a lower US dollar and lower policy rates, but fading geopolitical risks may take some of the steam out of the recent rally.
Investors are questioning whether the artificial intelligence investment boom is becoming overdone, and whether we are in a bubble. To date, much of the data centre build-out has been financed with existing cash and operating cash flow. But we have started to see recent signs of concern emerge, such as the use of debt and complex equity investments and vendor financing deals.
At this stage, we think the AI investment theme can continue, however, we favour rebalancing portfolios to navigate growing concentration and valuation risks.
Investment opportunities: We believe there are AI opportunities that have more attractive valuations, particularly Chinese technology stocks. Also, the AI theme can play out along other angles. For example, companies that adopt AI may see cost efficiencies or new product offerings. Finally, strategies that broaden exposure beyond traditional market-cap-weighted approaches may be a prudent way to mitigate the risk of overexposure to a few of the largest AI-driven names.
Emerging market (EM) equities posted outsized returns in 2025, and we believe there are continued catalysts for that outperformance to continue in 2026.
- Chief among them is the anticipated weakening of the US dollar, which we expect would benefit EM stocks.
- Rate cuts in the US also create room for EM central banks to continue lowering rates, supporting domestic demand and equity markets.
- Many EM economies are expected to outpace developed markets in gross domestic product growth, driven by favorable demographics, rising consumption, and investment flows.
- Moreover, EMs are poised to benefit from the global buildout of artificial intelligence infrastructure. China is investing heavily in AI and related technologies, which could serve as a powerful engine for equity market performance.
Investment opportunity: We expect Chinese stocks to continue to perform well in 2026 as policymakers want to see better shareholder returns alongside targeted support for key competitive industries.
We believe private credit potentially remains an attractive option for those seeking diverse sources of income beyond traditional credit. Base rates remain above their pre-pandemic levels, and an improved outlook for both the underlying real estate and cash flows of middle market borrowers could allow for private credit to perform well into 2026, in our view.
Investment opportunity: A more benign risk environment, better growth, and stable inflation, coupled with easier US monetary policy, are typically conditions where private credit has performed well.
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Additional resources
Download the 2026 outlook
Explore our full outlook, including our macro views, asset class views, and risks to the outlook.
Transcript
Annual Investment Outlook webinar
Invesco global strategists and experts across asset classes explore what lies ahead for markets and portfolios, and discuss opportunities they see.
