Growth Resilient but Maturing: The global economy is holding firm, underpinned by solid consumer spending and stable employment, though elevated valuations and policy shifts underscore a changing market backdrop.

Inflation Cooling Gradually: Price gains have slowed from prior peaks but remain above target, keeping central banks cautious even as rate cuts begin.

Corporate Profits Broadening but Uneven: Earnings leadership is rotating, with opportunities emerging beyond large-cap tech as profit growth normalizes across sectors.

Market Leadership Evolving: While A.I. enthusiasm dominates market sentiment, improving breadth across styles, sectors, and regions signals a shift toward more balanced performance.

Balanced Positioning Favored: With income opportunities in fixed income and alternatives and high valuations in equities, patience, quality, and selectivity remain key.

The world economy continues to expand, supported by strong household finances, steady job markets, and ongoing government spending, though growth momentum is projected to moderate.

Monetary policy has turned easier even as inflation stays above target, helping sustain growth but complicating the path ahead. For now, markets appear focused on the near-term benefits of easing rather than its longer-term risks.

Trade tensions are another wild card. This year’s U.S. tariffs have added modest pressure to goods prices, though global trade has held up better than feared. Meanwhile, a softer U.S. dollar should continue to benefit non-U.S. assets into 2026.

Finally, the scale and self-reinforcing wave of artificial intelligence (A.I.) investment has become a defining feature of today’s market landscape. Expanding partnerships and infrastructure buildouts across the technology ecosystem have amplified earnings and valuations. While A.I. remains transformative, the pace of capital deployment shows how enthusiasm can blur the line between innovation and speculation.

Overall, markets are being pulled between two forces: firm growth and lingering inflation on one side, and elevated valuations and policy risk on the other.

• United States: The U.S. economy remains the global leader, supported by healthy consumer demand and steady business investment. The labor market is cooling gradually—fewer openings, limited layoffs, and slowing wage growth. Most forecasts see real GDP rising about 2–2.5% in 2025, slower than 2024’s 2.8% pace but consistent with a soft landing.
• Consumer Spending: Household demand is steady but uneven. Higher-income consumers—helped by rising wages, home values, and equity gains—continue to drive travel and services, while lower-income households are still pressured by living costs. Goods spending has softened as buyers grow more selective, yet consumption still anchors U.S. growth.
• Developed International Markets: Advanced economies are expanding at a 1–1.5% pace as inflation cools and manufacturing steadies. With policy easing underway and real-wage gains lifting demand, earnings and sentiment should gradually improve through 2026.
• Emerging Markets: Emerging economies end 2025 on firmer ground. Inflation has fallen faster than in developed peers, leaving positive real rates that attract capital. Stronger balance sheets and a weaker dollar have revived investment, positioning EMs as a rare mix of growth and reasonable valuations.

Global equities are near record highs, supported by solid profits and improving breadth. Market leadership is still concentrated in large U.S. technology and A.I. names, but participation has widened across small- and mid-cap stocks and into international and emerging markets, which have led performance this year. With valuations abroad still well below U.S. levels—about 14–16x forward earnings versus 22.8x for the S&P 500—we see continued potential for more balanced global equity contributions heading into 2026.

In this environment, balance over concentration and a consistent factor discipline remain essential. Our equity framework is designed to reduce concentration risk and enhance portfolio resilience by emphasizing companies demonstrating strong momentum, attractive valuations, quality, and capital efficiency—factors that have historically supported more stable, risk-adjusted returns across cycles. Maintaining exposure to high-quality businesses across sectors enables participation as market leadership evolves while helping manage volatility.

Bond yields remain well above pre-pandemic levels, creating compelling income opportunities but also a more nuanced outlook. The Fed’s rate cuts have begun to ease financial conditions, yet inflation is still above target and could keep longer-term yields elevated. This tension between policy easing and persistent price pressures suggests volatility may persist even as the rate cycle turns.

We continue to emphasize short- to intermediate-term maturities that balance attractive income with limited duration risk. With spreads tight and fiscal deficits large, selectivity and credit quality are increasingly important.

High-income alternative strategies continue to play an important role in portfolios. Private credit remains well positioned, offering attractive yields and benefiting from disciplined underwriting as banks stay cautious lenders.

Private real estate shows early signs of recovery, with fundamentals improving across key sectors. In multifamily, limited new construction and steady demand are boosting occupancy and rent trends, while valuations remain well below prior peaks. As economic conditions evolve, these dynamics support a constructive outlook for income-oriented real assets that complement traditional bonds and provide inflation protection.