Mid-year review and assessment

Global resilience despite war, tariffs, inflation

Our original Global Investment Outlook: 2026 and Beyond was built around three cyclical themes – broadening, steepening, and weakening – and three longer-term forces shaping investor portfolios: intelligence; private markets; and big government. Midway through 2026, we think that framework still provides a useful starting point, but the balance of risks has changed.

Broadening remains firmly intact, supported by resilient economic growth, strong earnings, and improving opportunities across regions and asset classes. But steepening of yield curves has given way to higher-for-longer yields, reflecting higher inflation and tighter monetary policies. Higher yields, however, also offer improved income opportunities in shorter-duration holdings, including U.S. high yield and select emerging markets. Meanwhile, the U.S. dollar has firmed and is likely to remain rangebound rather than weak over the remainder of 2026.

Most importantly, the world did not break. Despite war, tariffs, inflation, tighter policy, and geopolitical fragmentation, the global economy and financial markets have held together better than many expected. This update therefore reframes the outlook around a single organizing idea: resilience – both the resilience already evident in economies and markets, and the resilience investors may need to build into portfolios for the remainder of the year.

Mid-year assessment: How our calls landed

Broadening reflected our conviction that investment opportunities across regions and asset classes would continue to expand in 2026. Despite the U.S.-Iran war, soaring energy prices, and other uncertainties, that call has turned out to be spot on. It remains our central view for the remainder of this year.

Steepening referred to yield curves, but inflation and tighter policy have instead flattened curves. War-related disruptions to Persian Gulf energy and petrochemical shipments have pushed inflation higher. As a result, markets have shifted from expecting central bank rate cuts to pricing in possible hikes, causing yield curves to bear flatten. Accordingly, we now favor short-duration yield, given attractive income opportunities on offer.

Weakening was about the U.S. dollar. That view was not entirely wrong. The dollar has remained range-bound in the first half of 2026. And that outcome is notable. A major global energy shock should have supported the dollar by improving the U.S. terms of trade. Instead, the dollar has only firmed modestly. That tepid response suggests the era of broad dollar strength is likely over.

A more resilient outlook

The rest of this outlook is organized around one central idea: resilience. The phrase “the world didn’t break” is not meant to suggest that risks have disappeared or that the outlook is free of strain. Rather, it captures the defining surprise of 2026 so far: Economies, markets, companies and investors have absorbed a series of shocks without a sustained breakdown in growth, earnings, credit, or global trade. The first sections explain why the global economy and financial markets have held up better than many expected, despite 18 months of geopolitical turbulence, tariffs, war, elections and rising inflation. They also show how resilience has been supported by solid economic growth and strong corporate profits growth across sectors and regions.

From there, we translate resilience into investment implications for equities, fixed income, private markets, and alternatives. We also identify key long-term (thematic) opportunities. In all dimensions, we focus on where resilience is apparent and where it can create opportunities for investors in the second half of 2026.

Executive summary and investment implications

• Resilience is the key theme for 2026. Markets and economies have held up well despite geopolitical shocks, policy uncertainty and rising inflation. Global growth remains close to trend, supported by consumer spending, business investment, productivity gains and strong corporate profits.
• We expect investment opportunities to broaden across global equity markets, while corporate credit markets should remain stable. Strong earnings in the United States and emerging markets will support a wider set of opportunities across regions and sectors.
• Tighter monetary policy should keep bond yields high and yield curves flat, creating opportunities to earn income. We favor U.S. high-yield credit, select emerging market debt—especially in Latin America—and municipal bonds for U.S. taxpayers.
• Long-term themes remain compelling. Artificial intelligence (AI) is driving demand for energy, infrastructure and broader economic change; rising investment in defense, national security and energy infrastructure create long-term potential return opportunities. Aging populations will require investment in labor-saving technologies, assisted living and health care innovation.
• In private markets and alternatives, secondaries, private credit, real estate and infrastructure offer attractive opportunities.
• Risk to the view. Geopolitical conflict, inflation and a stronger central bank response remain key risks for investors to watch in the second half of 2026.

Stephen Dover, CFA, is Franklin Templeton’s Chief Market Strategist and Head of the Franklin Templeton Investment Institute. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

Lawrence Hatheway is Global Investment Strategist – Franklin Templeton Institute.

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