Retirement investors may face both opportunity and risk in 2026

T. Rowe Price investment leaders outlined a cautiously optimistic outlook for 2026 at the firm’s 43rd annual Global Market Outlook press briefing. 

The event brought together specialists across equities, fixed income, and multi-asset portfolios, along with guest speaker Glenn August, founder and CEO of Oak Hill Advisors. Together, they offered a multi-faceted assessment of trends shaping the global economy—from AI’s shifting growth engine to the implications of aggressive fiscal expansion across developed markets.

Capital markets strategist Tim Murray described a U.S. economy increasingly defined by contrasting narratives. AI-related industries are thriving, while rate-sensitive sectors such as housing and manufacturing remain weak. 

Although the Federal Reserve has begun cutting rates, Murray cautioned that mortgage costs remain high enough to dampen a housing rebound.

Labor market deterioration is emerging as a key risk, he added, noting that while layoffs are still low by historical standards, job creation has slowed and recently softened even within typically stable noncyclical industries.

“The AI sector is booming, but areas like housing and manufacturing are lagging,” Murray said. “Stimulus could help broaden growth in 2026, but labor market weakness and sticky inflation cloud the outlook.”

AI leadership set to broaden

In equities, Josh Nelson, head of Global Equity, said the AI boom is entering a new phase, shifting from digital tools like models and software to “physical AI” infrastructure requiring vast upgrades in energy, cooling, networking, and semiconductor capacity.

Top-tier AI companies are expected to continue outperforming, but Nelson emphasized rising dispersion as competition intensifies and product cycles diverge.

He also highlighted the expected boost from the 2025 “One Big Beautiful Bill,” which could inject $200–$300 billion in U.S. fiscal stimulus in 2026. Internationally, he pointed to a quiet expansion underway in Europe, compelling value in Japan, softened regulatory pressure in China, and attractive valuations across emerging markets.

“The AI boom is far from over,” Nelson said. “By 2026, we expect broader participation across AI and the broader market.”

Ken Orchard, head of International Fixed Income, reported generally healthy credit fundamentals: strong balance sheets, manageable default expectations, and ample access to capital markets. But he warned that certain “late-cycle” behaviors make credit selectivity more important than ever.

A central challenge, he noted, is ballooning fiscal deficits in the U.S., UK, and key eurozone economies. As governments issue more debt to fund expansionary policies, they must increasingly offer higher yields to attract buyers.

His highest-conviction views include keeping duration low, favoring public credit over government bonds, underweighting U.S. fixed income relative to global peers, holding inflation-linked bonds, and overweighting quality-tilted emerging markets.

“Rich valuations demand disciplined credit selection,” Orchard said. “Meanwhile, fiscal expansion is pushing government bond yields higher as supply rises.”

“Cockroaches” in credit markets require vigilance

Rounding out the panel, Glenn August of Oak Hill Advisors emphasized the importance of credit and liquidity risk management in leveraged finance. 

While he acknowledged structural improvements in loan and high-yield markets, he stressed that some troubled credits—his metaphorical “cockroaches”—always persist in a $5 trillion market.

Lower recovery rates heighten the need for careful selection, active oversight, and distressed-debt expertise.

“There are always cockroaches in markets,” August said. “The key is to avoid them—and that’s where selection and active management matter.”