2026 investment and economic outlook | Macquarie

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In addition to the economic outlook, we are pleased to share a report from the Macquarie Wealth Management Investment Strategy Team with their views on the road ahead for investors.

Key insights

We are optimistic on risk assets in 2026 but the path to good portfolio performance is unlikely to be as linear as it was in 2025. Investors need to accept there will likely be more volatility than last year.

Against this backdrop, we highlight important investment themes for 2026.

AI has given but it can also take away:

Next year the global economy should see a modest pickup in growth, but it will feel different to 2025. US productivity is picking up due to cost cutting, restructuring and increasingly the broader adoption of artificial intelligence (AI) so data on output and income will likely be much stronger than employment.

Corporates will take the bulk of the machine-driven productivity gains, which is clearly positive for equities. But AI could also be a double-edged sword. Expectations about AI’s ability to deliver future earnings are extremely buoyant and there is very little margin for error in risk asset prices. If these expectations are not realised, then an otherwise positive outlook could fade.

A more growth friendly White House:

The global economy has absorbed a lot of President Trump’s America First agenda. But the last few months of 2025 showed the US political cycle is alive and well and already there have been signs that poor polling and heavy losses in gubernatorial elections are causing a rethink of economic policy which would likely be growth enhancing.

Midterm elections are scheduled for November, and the rising cost of living is emerging as an election issue. There also seems little tolerance for another government shutdown after the public just endured the longest on record. Negotiations to extend government funding are scheduled once more in January. There is still more of the tariff increase to absorb, so more back-pedalling on tariffs could occur, or government handouts such as a baby bonus, or tariff rebate could come onto the agenda (which again would be growth friendly).

There will also be continued pressure on the Fed to lower rates, particularly after Fed Chair Powell’s term finishes in May.

Inflation is a threat that still lingers:

Central banks are generally happy with the progress made on inflation even though it generally remains above or at the top end of their targets. Until it becomes clear the final leg down will occur it’s hard to see significant further easing, unless the AI trade dislocates. In the US, there are more tariff increases in the pipeline to be passed through, and unemployment rates around the world are still relatively low.

US risk assets are priced for perfection: The growth outlook is good, but analysts are expecting 14% US EPS growth and the market is trading on a 12 month forward PE of 23x (just below the 2000 dotcom peak). There is also stock concentration risk, with the Magnificent 7 accounting for ~70% of the return in the index this year and 34% of the market cap of the S&P 500. This leaves little room for disappointment and the stakes around this are high because the US provides the direction for global markets.

The list of uncertainties is long, so investors should be prepared for increased volatility and be prepared to pivot if the fundamentals change. Diverse portfolios are the best way for investors to navigate this uncertainty, which can be achieved in several ways.

In equities, we prefer EM, Europe and Japan over Australian and the US. Australia and the US are expensive and highly stock concentrated markets. Europe and Japan are more diversified with a solid earnings outlook with more attractive valuations.
In fixed income, continue with a barbell strategy by locking in higher ‘all-in yields’ in quality fixed rate credit alongside floating rate senior secured private credit.
Private and alternative assets are our preferred strategy for mitigating near-term volatility and protecting against downside risks to growth. Overall, we are optimistic about the growth outlook and are confident that markets will have interest rate support even if that means no further rate cuts. It also seems likely the White House will become more growth friendly than it was in 2025. However, we remain watchful of increased volatility should the current investment and productivity driven AI narrative begin to fade.

Read more about key insights

- Paul Huxford

Chief Investment Officer
Macquarie Wealth Management

Asset class

Asset class comment

Preferences

Cash (Australia)

It is likely that the RBA has finished easing and cash rates will remain higher for longer, with the next move likely higher cash and short-term rates. Investors should also consider locking in higher ‘all-in yields’ further out on the yield curve to provide additional yield enhancement.

Maintain levels sufficient for transaction and liquidity purposes.

Equities

Equities normally rally through slowdowns and provided this is what we see during the remainder of the year we maintain a 'neutral' stance on equities despite extended valuations, optimistic earnings projections, and the still uncertain path of trade policy.

We favour value-oriented sectors, which benefit from more reasonable valuations, deregulation, and the broadening of economic activity beyond AI infrastructure-driven spending.

Regionally, we identify better opportunities outside the US, driven by more compelling valuations and improving sentiment, supported by increased fiscal spending and accommodative central banks.

Markets: Favour allocations outside the expensive and highly stock concentrated US and Australian markets. Overweight Europe, Japan and emerging markets through underweights in US and Australia.

Size: Bias toward small cap over large cap stocks but acknowledge that a more attractive entry point is needed to have strong conviction.

Style: Favour value over growth, given central banks have room to lift cyclical economic growth next year, bond yields are likely to remain relatively high, and IT earnings growth is likely to slow. Additionally, ex-US equity markets are more ‘value’ than ‘growth’ oriented vs the US

Fixed Income

Higher all-in yields for fixed income provide an attractive longer-term allocation, downside protection and a ballast to an overall portfolio.

A barbell strategy, balancing fixed rate, higher quality (mid-curve) assets against floating rate, senior secured non-cyclical private credit, remains a prudent approach into early 2026. Navigating credit markets will require diligent security selection, sector rotation, documentation analysis and an active management approach.

Sovereign: Prefer mid-curve maturities over the long-end, which will be less sensitive to tariffs and term premia. Developed market government bonds will be shaped by the tension between supportive rate cuts and the pressure of massive issuance and potential fiscal mismanagement.

Investment Grade: Credit spreads are entering 2026 at historically tight levels, making security selection critical. We remain constructive on investment grade ‘all-in’ yields and positive demand and supply imbalances.

High yield is supported by higher carry, lower breakevens, a pro-growth backdrop, and sound balance sheets, but it is much more susceptible to ‘risk off’ events. We prefer senior secured non-cyclical private credit for its attractive illiquidity premium and superior protections through covenants and documentation.

Private Credit

Continues to offer a premium (illiquidity) over public fixed income markets, while also providing structural protection in the form of seniority, documentation and a bias to defensive industries.

Core: Prefer segments where competitive pressures are less acute, including US middle market direct lending, European direct lending and asset-based finance.

Alternatives

Private Equity: Improving liquidity, steady financing markets and narrowing bid-ask spreads (improving exit dynamics) are all supportive of activity. However, market beta is no longer an easy driver of return, and earnings growth and disciplined execution will be the primary determiner of future performance.

Hedge funds: Greater market and policy dispersion, and directional volatility should benefit hedge funds’ ability to harvest alpha from market inefficiencies and dislocations.

Private Equity: Prefer small to middle market buyout relative to large buyout, secondaries and recent vintages.

Hedge funds: Prefer multi-strategy funds that employ disciplined risk frameworks and can nimbly allocate across asset markets.

Real Assets

Real assets offer stable income, inflation hedging, and diversification, and are less impacted by tariff policies due to their contracted cash flows, positive correlation to inflation, and strong fundamentals.

Infrastructure: Will continue to benefit from structural tailwinds of deglobalisation, digitalisation, the energy transition and supply/demand shortfall.

Property: The commercial real estate cycle has turned positive.

Infrastructure: Prefer core, unlisted, infrastructure due to less correlation to listed markets.

Property: Prefer core diversified exposures.

Global Economics

Global economic growth is likely to pick up in 2026, but it won’t feel like an interest rate-led rebound. Rates have not been aggressively cut and more tariff pass through needs to be absorbed. Macquarie expects US growth to rise from 2.0% in 2025 to 2.6% in 2026. The downside risk is if the AI bubble bursts.

China has been able to maintain its two-speed economy and Macquarie expects this to continue and policymakers to achieve their 5% growth target.

Australia and the Euro area have probably finished cutting rates. Inflation is under control in the Eurozone, but upside risks remain in Australia.

Global Equities

A pickup in economic growth next year even with more tariff spillover is providing a generally positive backdrop for global equities. But a key risk is that the AI boom turns to bust, despite it having positive earnings fundamentals.

US Tech capex plans are both large and ambitious, expected return hurdles are probably too high, and stocks remain priced for earnings perfection.

Investors can manage this risk by diversifying into ex-US international equity markets, which are more ‘value’ than ‘growth’ oriented.

Australian Equities

Australia may have underperformed the rest of the world since the launch of ChatGPT put a turbo under the global IT sector, but Aussie banks and Consumer discretionary stocks have delivered investors similar returns to global equities.

Returns this year have been driven mostly by PE multiple expansion, with little contribution from earnings. Consensus expects 8% growth in earnings next year, but this may prove too optimistic.

But Australia has shown that it is generally a good defensive market, particularly when global interest rates are rising and it should be a key part of the line of defence in portfolios.

Private Credit

Private credit all-in yields remain attractive and continue to compare favourably to public credit alternatives. Stable interest rates and investor demand should continue to support primary market activity.

But cracks are emerging given late-cycle dynamics, and investors should be aware of signs of stress in more cyclical sectors or mispriced loans with loose terms.

Performance dispersion is accelerating across managers and borrowers, making origination, deployment and underwriting discipline and workout capability critical sources of alpha for coming vintages.

Alternatives

Improving deal and exit activity signals a thaw in private markets – yet the strongest exits remain concentrated in top-quality assets with resilient fundamentals.

Macro uncertainty and tighter credit conditions mean the days of easy beta are over. Return will hinge on operational value creation and asset quality.

Multi-strategy hedge funds are benefitting from greater market dispersion and directional volatility but rising competition for talent mean manager selection and fee discipline is crucial.

Real Assets

We like real assets which we believe offer compelling risk-adjusted returns with limited directional exposure to public markets.

Unlisted infrastructure offers attractive fundamentals, long-term visibility and structural tailwinds from decarbonisation, digitalisation, and deglobalisation.

Property stands to benefit as the nascent upswing in the commercial real estate cycle continues to gather pace.

Additional information

This Report was finalised on 8 December 2025.

Recommendation definitions (Macquarie Australia/New Zealand):

Outperform – return >10% in excess of benchmark return Neutral – return within 10% of benchmark return Underperform – return >10% below benchmark return.

Important information: The analyst(s) responsible for the preparation of this research receive compensation based on overall revenues of Macquarie Group Limited (ABN 94 122 169 279 AFSL 318062) (“MGL”) and its related entities (the “Macquarie Group”, “MGL”, “We” or “Us”). No part of the compensation of the analyst(s) was, is or will be directly or indirectly related to the inclusion of specific recommendations or views in this research.

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