Zurich strategists bet on slow recovery and lower rates
- Global growth is stabilizing rather than accelerating, with the United States clearly leading in 2026, the euro area progressing modestly, and China remaining structurally weaker.
- Markets remain expensive, but sentiment is positive: investors expect gradual rate cuts, improving earnings trends for 2026, and a more predictable macro environment.
- Opportunities require active management: emerging market debt, gold, intermediate-duration bonds, and quality or AI-related themes, while remaining vigilant regarding overvalued segments such as US megacap technology.
Global growth expectations over the next 12 months remain slightly positive, with most respondents anticipating a stabilization of the economic cycle rather than a strong acceleration. The United States continues to lead, with expected 2026 growth close to 2% and inflation converging toward 1.5–2.5%, creating room for a Fed rate cut at the end of the year. The euro area shows modest growth around 1–1.5%, contained inflation, and a cautious normalization of ECB policy toward 3%. China remains the weakest link, with growth projected below 4.5% in almost all responses. On financial markets, expectations remain reasonably constructive: a 5–10% six-month return for the S&P 500, a more modest performance for the SMI, and a US 10-year yield expected between 3.5% and 4.5%.
Three key themes emerge. First, the structural dominance of US equity markets, despite valuations widely viewed as elevated. Second, improving attractiveness of emerging market debt, seen as one of the few segments offering genuine relative value. Third, investors agree on both the strategic appeal of AI, energy, and transition themes and the valuation risks they carry: strong performance drivers but potential sources of volatility. The main risks identified are persistent inflation, economic slowdown, geopolitical tensions, and, in some cases, credit events. Earnings revisions are expected to remain moderate, limiting the scope for valuation expansion but supporting gradual earnings growth in 2026. Overall six-month sentiment remains cautiously positive.
Asset allocation implications converge toward a slight increase or stabilization in equity exposure, with a bias toward the United States, quality, AI-related themes, and emerging markets. Fixed income preferences favor intermediate maturities (3–7 years), benefiting from an expected gradual decline in rates. High-quality credit and US high yield remain attractive sources of carry. The currency outlook remains stable, with EUR/USD expected above 1.15. Gold, projected between 4,000 and 4,500 dollars by end-2026, reflects structural demand in an environment of prolonged uncertainties and declining real rates. Overall, the environment is less risky and more predictable than in 2023–2024, but still characterized by elevated valuations, reinforcing the need for active and selective portfolio management.
