Investors are set to face a “multi-dimensional” 2026 market, with diverging rate cycles and uneven regional growth reshaping allocation priorities globally, according to BNY’s 2026 investment outlook.

The US is expected to lead the global cycle, helped by resilient consumers and improved balance sheets. Housing and targeted fiscal support reinforce that position, although BNY warns the lead could change if regional dynamics shift. The group has forecast US GDP growth of 1.9% in 2026, euro-area growth of about 1.3%, and China relying on additional fiscal support to meet targets as deflation persists.

Euro-area growth will be supported by higher fiscal spending, driven in part by Germany’s push into defence and infrastructure. However, construction bottlenecks and political delays, especially in France, could limit the overall impact. Rate-sensitive sectors such as housing and manufacturing are already responding to ECB easing, yet weaker manufacturing, delayed stimulus or competitive pressure from Chinese exports remain key downside risks.

The Fed is expected to keep cutting rates well into 2026, with the lower bound possibly reaching 2.5% by 2027. In contrast, the ECB is likely to ease only modestly, the Bank of England is set to proceed gradually, and the Bank of Japan may tighten policy. This divergence could leave the dollar under pressure as the global system becomes more multi-polar, with multiple reserve currencies, according to the investment outlook. With overseas investors still underweight US assets, the outlook expects a renewed demand in the US, accompanied by more active currency hedging.

In fixed income, conditions remain supportive overall, with stable US credit spreads creating opportunities in shorter duration Treasuries and investment-grade credit, leading BNY to prefer the front end of the US yield curve.

In Europe, Spain and Germany are seen as better balanced than France, with BNY highlighting attractive value in Italy, Ireland and Norway’s duration exposure. The 2026 outlook also pointed to potential in structured credit, where a “complexity premium” and resilient fundamentals may support returns. In euro-denominated credit, the yield premium over the US has narrowed but remains supported by global demand and a constructive macro backdrop; with spreads still historically tight, BNY said investors should be more “selective” on duration.

In emerging markets, Brazil, Colombia and Peru stand out as policy-easing cycles deepen and expectations of a softer dollar improve the case for unhedged local currency debt.

On equities, the US still trades at a premium, according to the analysts, but valuations are supported by strong margins and an index composition tilted toward high profit, tech-leaning sectors. Earnings growth is expected to broaden beyond mega-caps in 2026, giving Europe and Japan more scope to catch up as defence and infrastructure spending rises and reform efforts continue.

Within the AI theme, long-term winners are unlikely to be the “fast adopters”, but the firms able to pair productivity gains with the scale to capture new demand as prices fall. Businesses with market power or asset- or regulation-based advantages are judged more likely to retain those gains, while information-driven sectors may see competitive pressures rise. BNY shared that it expects “fiscal-plus-AI” to be a powerful combination, benefiting infrastructure, energy, metals and the broader technology ecosystem.