Q4 2026 Global market outlook

This transcript has been edited for clarity and readability.

In this webinar

• Welcome and panel introductions (00:03)
• Markets so far this year (01:58)
• What is driving volatility in bond markets? (06:26)
• Does the 60/40 portfolio still work? (10:34)
• Opportunities across global equity markets (13:39)
• AI investment, valuations and risks (18:03)
• The outlook for US interest rates (22:10)
• Investor questions answered (23:35)

Welcome and panel introductions (00:03)

Victoria Scholar

Hello and a very warm welcome. Thank you for taking the time out of your busy day to join our latest webinar.

My name is Victoria Scholar from interactive investor, and I’ll be your host. Today, we’re looking at the outlook for markets for the rest of the year. With schools back and September under way, this is a good time to reset, think about your portfolio and consider how markets have performed so far this year. Perhaps our panel can also give us some clues about where markets might be heading next.

We’re aiming to run for around 40 minutes. We’ll begin with a panel discussion and then answer your questions. You can submit questions through Slido or in the YouTube comments.

Before we start, please remember that this webinar is for educational purposes only and does not constitute financial advice.

Joining me today are Sunil Krishnan, Head of Multi-Asset at Aviva Investors, and Katie Trowsdale, Head of Public Market Solutions at Aberdeen.

Markets so far this year (01:58)

Victoria Scholar

Sunil, let’s start by setting the scene. Markets have been surprising in several ways, particularly the resilience of equities, the revival of inflation and volatility in the bond market. What has caught you off guard, and what has played out as you expected?

Sunil Krishnan

If you cast your mind back to Christmas or New Year, there were certain things we expected. There were signs that the strength we had seen in the US economy during the second half of last year was broadening. We generally expected that to happen without too much difficulty from inflation, potentially allowing some central banks to reduce interest rates.

We also thought there would be a strong focus on supporting financial markets through US policy, particularly with the crucial midterm elections approaching.

What actually happened was that the war in Iran blew a sizeable hole in many of those assumptions. Few people expected such a big shift from an administration that had generally said it did not want to become too involved in other countries’ affairs because doing so was expensive and risky. The conflict brought tighter supply chains, higher commodity prices and renewed concerns about inflation, not least for central banks.

Even where developments were more in line with expectations, some trends went further than anticipated. Artificial intelligence use continued to grow, benefiting both the companies building the models and those supplying the hardware.

If you look at a major investment region such as emerging markets, performance is now heavily influenced by two companies: TSMC in Taiwan and Samsung, because they produce key chips required for the rollout of AI. A very large region has therefore become highly concentrated in two companies. In that sense, the predictions of success were almost too successful.

Victoria Scholar

Katie, would you echo that? Has anything particularly surprised you this year?

Katie Trowsdale

The obvious event, as Sunil said, was the war in Iran, which nobody expected. Had somebody told us about it at the start of the year, we probably would have positioned our portfolios much more defensively.

It is therefore surprising how strong markets and corporate earnings have been. Portfolios have been incredibly resilient despite continuing geopolitical uncertainty, higher inflation and higher bond yields. That resilience has been very positive, but it also raises the question of what comes next.

Victoria Scholar

Do you think that resilience will continue for the rest of the year? We’ve begun to see wobbles in the bond market, but equities remain strong.

Katie Trowsdale

I’ve been thinking a great deal about why bonds have struggled while equities have continued to perform well. Several factors are probably at work.

Governments are issuing high levels of debt, but hopefully for productive reasons. If the money is invested well, it could support further economic growth. Pension funds unwinding long-term debt positions have also increased the supply of bonds.

There are understandable reasons why yields are higher, including inflation and these supply factors. The equity market currently appears to interpret some of this as positive.

What is driving volatility in bond markets? (06:26)

Victoria Scholar

Sunil, what is really happening in the bond market? There are several theories, from fiscal deficits and government debt to technology giants borrowing in the bond market. Have yields peaked, or could they move higher?

Sunil Krishnan

You should begin any analysis of bond markets by understanding what is happening to cash interest rates. Cash is the natural alternative to bonds, so their relative attractiveness matters.

At the start of the year, many investors expected central banks to lower interest rates. We have moved into an environment in which they are instead considering raising them, increasing the potential return on cash. That was always going to be difficult for the bond market.

There is also an additional dimension affecting longer-dated bonds, including 10-year and 30-year maturities: supply. For governments, that means borrowing to fund spending. Investors must also compare government bonds with investment-grade corporate bonds, including more issuance than expected from large technology companies.

It is important to keep the scale in perspective. Technology giants still account for a relatively small share of investment-grade issuance. Their share may have risen from about 5% to 6% or 7%, whereas in 2015 it was probably above 20%.

Markets can react strongly to the rate of change, so an unexpected rise may still have an outsized influence. But the largest source of supply remains governments. In the US, the deficit is tracking at around one percentage point of national income more than people expected this year. That represents a lot of dollars and a lot of bonds.

Victoria Scholar

Should investors expect further bond-market volatility between now and Christmas?

Sunil Krishnan

This will probably take more time to play out. One measure we follow is the yield on US inflation-protected bonds. Historically, a yield of around 2.5% has been attractive, and that is roughly where we are today. Whether yields break above that level will be important because it could prompt more active investors to reconsider their allocations.

From a longer-term perspective, volatility does not necessarily mean that the fundamental value of bonds is being eroded. As bonds become cheaper, their yields and prospective returns increase, which can help stabilise the market.

Noise in the bond market may eventually cause greater equity-market volatility, but in recent years, concerns spilling from bonds into equities have not caused serious long-term damage to equities. Both markets can withstand the noise, although investors should expect it to remain in the headlines and avoid panicking when it appears.

Does the 60/40 portfolio still work? (10:34)

Victoria Scholar

Katie, you recently wrote about the traditional 60/40 portfolio and the role of bonds in an inflationary environment. Do you still regard bonds as a useful hedge against equity weakness?

Katie Trowsdale

There has been a lot of discussion about the supposed end of the 60/40 portfolio. This is primarily because the supply shock caused by the war in Iran affected both inflation, which was negative for bonds, and growth, which was negative for equities.

Fundamentally, however, bonds remain an attractive asset class. They now offer appealing yields and can provide a defensive element within a long-term portfolio. If an investor is nervous about volatility, they can consider shorter-dated bonds, where yields can still exceed 4%.

Bonds remain a useful portfolio building block. But if supply-side shocks continue, that also strengthens the case for diversified portfolios containing other asset classes that may be more resilient when inflation is high.

Sunil Krishnan

Ten years ago, bonds had a fantastic record of performing several jobs in a portfolio. They offered strong returns because central banks were buying them and interest rates were extremely low—negative in some countries. They also protected investors against severe economic trouble, when growth and company profits fell sharply.

Bonds even appeared to work whenever there was a relatively small wobble in the stock market, because most concerns related to economic growth.

The circumstances in which bonds work well are now less broad. If economic growth seriously disappoints, a fixed income from a reliable issuer such as a government can still be valuable. But stock markets no longer wobble only because investors are worried about growth. Inflation concerns have created more periods in which bonds and equities move in the same direction. We saw that in 2022 and, to some extent, this year.

Bonds can still protect against a serious downturn, but at other times investors may need to think more widely, including about alternative investments with different performance drivers.

Opportunities across global equity markets (13:39)

Victoria Scholar

Turning to equities, US markets have performed well, Japan has been particularly strong, and the UK and Germany have also delivered good returns. Do you expect more of the same, or could we see the seasonal wobble that often occurs around September?

Katie Trowsdale

Equity markets have already performed incredibly well this year. Another very strong quarter would be welcome, but it cannot be guaranteed, and we position portfolios over much longer periods.

We are cautiously optimistic. The US has been the star performer, but the dominance of its technology companies makes us nervous. Nvidia alone represents about 8% of the market, while AI-related companies account for around 40%. That makes diversification more difficult.

We therefore think about diversification across regions rather than concentrating too heavily on the US. We like Asia and emerging markets, although Samsung and TSMC together represent around 20% of the emerging-markets index. Valuations in those markets are more attractive, potentially reducing downside risk.

In our active ranges, we mainly invest in emerging-market equities through active managers. We believe they can still find undervalued opportunities and interesting ideas without relying on the largest companies.

When technology stocks weakened in July, the UK market performed well. Energy companies, Vodafone and other UK-listed shares were valuable diversifiers. The FTSE 100 is sometimes criticised as a “Jurassic Park” index, but when there is volatility in the fashionable AI and technology sectors, investors often return to the UK.

Victoria Scholar

Sunil, which regions appeal to you? Has Japan’s strong run gone too far, or is there further potential? Are there particular emerging economies that you like?

Sunil Krishnan

I think we are entering a period in which opportunities are broadening, which is good news for investors. That applies beyond the US, but also within it. US healthcare has recently attracted a lot of interest. It may not appear to be at the forefront of technological change, but technology is an important driver of new discoveries and AI applications in the sector.

Liking the stock market no longer has to mean liking only the Magnificent Seven. More opportunities are becoming available.

Japan is a good example. There are interesting developments in its domestic economy, while some specialist Japanese manufacturers are proving important to the global buildout of technology. Small, niche suppliers can be difficult to replace. A large company such as Nvidia may depend on one of them, but finding alternative suppliers and building resilience takes time. Japanese companies are benefiting from that. Kioxia, for example, has produced very substantial gains this year.

AI investment, valuations and risks (18:03)

Victoria Scholar

Are semiconductor companies still attractive after their strong gains and periods of volatility this year?

Sunil Krishnan

Their gains have been very large, but their valuations are not necessarily that high. Asian hardware producers such as Samsung and TSMC trade on relatively low multiples of their earnings, both for this year and based on expected future profits.

If predictions about demand growth are broadly correct, most technology-related companies do not have a valuation problem. The important question is whether the earnings forecasts are accurate. Broadly speaking, we believe they remain on track.

Nvidia’s recent results attracted attention partly because the company was willing to discuss its outlook as far ahead as its 2028 financial year, which ends in January 2028, and forecast revenue growth of around 70%. Companies naturally sound positive about their prospects, but detailed guidance about the growth path gives us some reassurance about the next 12 to 18 months.

Katie Trowsdale

Semiconductor earnings have been exceptional, but investors should consider what is funding them. Hyperscalers are investing enormous sums in semiconductors, yet they have not experienced the same earnings growth.

Around $2.5 trillion has reportedly been spent on AI, while the benefits attributed to AI have been closer to $150 billion. There is a large gap between the semiconductor companies’ performance and the returns so far achieved by the businesses buying their products.

Many companies, including our own, have started spending money on AI but have not yet seen the resulting revenue growth. The question is whether those earnings will eventually come through for hyperscalers and other companies investing in the technology.

Sunil Krishnan

This will become particularly important as potentially large initial public offerings approach. Anthropic may come to market within weeks, while OpenAI could be looking towards next year. How these businesses turn their spending into profit growth will become an important focus for markets.

Katie Trowsdale

Investors should also be cautious about the financial engineering taking place. Nvidia is helping to fund some companies that buy its semiconductors and, in some cases, providing a form of backstop. This creates a circular financing system.

Victoria Scholar

Is that something to worry about?

Katie Trowsdale

Absolutely. It may be fine while the cycle continues, but a great deal is riding on it.

The outlook for US interest rates (22:10)

Victoria Scholar

Markets are pricing in around a 60% probability of the US Federal Reserve raising interest rates this month. Is a rise likely, and what could happen during the rest of the year?

Katie Trowsdale

Expectations changed when Kevin Warsh spoke at Jackson Hole and said there was further work to do. His cautious tone pushed the implied probability of an interest-rate rise from around 35% to more than 60%.

He has given relatively little forward guidance, so markets listen very closely to what he says. We also have inflation figures due at the end of the week.

Inflation remains persistent and has been above the Fed’s target for around 65 months. At the same time, the labour market and economic growth are still strong, suggesting the economy could withstand higher rates. It is a close call, but an increase is certainly possible.

Investor questions answered (23:35)

What is the biggest macroeconomic risk investors may be underestimating? (23:40)

Victoria Scholar

James asks: what is the single biggest macroeconomic risk that investors may be underestimating?

Sunil Krishnan

Investors should spend most of their time thinking about the longest timeframe they can. For equity investments, that may mean considering a five-year outlook.

Over that horizon, the most important question is probably how artificial intelligence changes financial markets and the real economy. Will it deliver enough productivity growth to justify continued spending and investment?

We are optimistic about AI’s ability to drive change and restructuring in the economy. But will the companies currently regarded as winners remain the winners? AI might fulfil many of its promises while also becoming commoditised. It could become difficult for OpenAI or ChatGPT to build a lasting competitive advantage over Anthropic, Chinese developers or smaller Western competitors.

We should be humble about predicting how this will play out. It could be very disruptive in either direction.

Victoria Scholar

We are currently in the rollout phase, when infrastructure providers are doing well. They may not necessarily be the final dominant companies.

Sunil Krishnan

Infrastructure providers remain important. Part of Nvidia’s strategy appears to be building a durable ecosystem around its products. I like the description of Nvidia as the central bank of artificial intelligence, trying to keep the entire system working. That could build a long-term future.

I have more confidence in the hardware makers over the long term and more questions about how model developers can create a sustainable competitive advantage.

Could debt-funded AI investment cause a market correction? (26:09)

Victoria Scholar

Jay asks about the Bank of England’s warning that an overleveraged, debt-funded boom in AI infrastructure could trigger a sharp market correction and economic downturn. How great is that risk?

Katie Trowsdale

We touched on this when discussing financing. Hyperscalers have moved from funding AI investment through their cash flows towards borrowing. At the moment, that borrowing still represents a relatively small share of the bond market.

Nvidia funding some of the investment in its own semiconductors is more complex and something investors should watch carefully.

Should investors avoid US technology stocks? (27:18)

Victoria Scholar

Richard says Jeremy Grantham is predicting a major market correction and recommends avoiding the US and technology stocks. Do you agree?

Sunil Krishnan

Jeremy Grantham is very intelligent and has seen many market cycles, but I am sure he would be the first to admit he has not always been right. He has generally approached markets cautiously and has tended to become concerned when valuations are high relative to recent history.

As I said earlier, this is not necessarily a valuation problem. The more important question is whether earnings expectations are correct. Grantham was absolutely right in the late 1990s and early 2000s, but it has been difficult simply to repeat that playbook. I would not regard the conclusion as clear-cut.

Can emerging markets and Japan continue to outperform? (28:24)

Victoria Scholar

Kevin asks whether emerging markets and Japan, two of the best-performing areas over the past 12 months, can continue to do well or whether better opportunities exist elsewhere.

Katie Trowsdale

We still like emerging markets despite their strong performance this year. Whether that continues for the rest of this year is uncertain, but over the longer term we remain positive and hold overweight positions in emerging markets and Asia in our portfolios.

Japan is also interesting. Despite its strong recent performance, it is benefiting from structural changes that should support Japanese equities. These shares spent a long time in the wilderness, but corporate governance is improving and companies are beginning to use the cash on their balance sheets more effectively.

There could be a short-term pause in earnings growth after the gains we have already seen, but we remain positive about Japan.

How likely is an AI bubble to burst? (29:42)

Victoria Scholar

We’ve received several questions about an AI bubble. With high market concentration and heavy investment in US technology and AI, should investors be preparing for a major downturn?

Sunil Krishnan

Forecasting bubbles is extremely difficult. Even if you eventually prove correct, acting too early can damage your long-term returns. An investor who avoided the market at the start of this year would have missed significant gains. I cannot think of many professional investors with a strong record of successfully forecasting more than one bubble.

It is more important to do two things. First, build a well-diversified, long-term portfolio capable of withstanding a collapse in one area, because such events will happen. Second, accept that the future is uncertain and identify the indicators you intend to monitor.

During periods of technological change, I watch for the point when technology moves from creating additional demand to creating additional supply. That can have profound effects on inflation and corporate profitability.

Businesses initially spend increasing amounts to accelerate the adoption of new technology, whether railways, the internet or AI. Eventually, that spending slows and the technology enables them to do more with less.

We are not seeing that transition yet, but we are watching it closely. I am particularly interested in when the largest spenders on AI capital expenditure say that they remain optimistic but no longer need to spend as much as in the previous quarter. They will probably present that in reassuring language, but it could represent a profound change and cause us to adjust our assessment quickly.

How could the Iran war affect markets? (32:42)

Victoria Scholar

What market reactions could follow a US defeat in the Iran war or an end to the conflict? Do you expect tensions to continue in the months ahead, or could there be a resolution?

Katie Trowsdale

The renewed escalation last week had a negative effect on markets and pushed oil prices higher. It is a delicate balance between how far the US can push and the effects on markets and oil.

Our macro team refers to “TACO oil”—Trump Always Chickens Out—because they expect him eventually to pull back. We place a 55% probability on that outcome, but the conflict could continue for some time. We therefore expect volatility, reinforcing the importance of diversification and avoiding reliance on a single investment theme.

What role can gold play in a portfolio? (34:05)

Victoria Scholar

Alan asks for your thoughts on holding gold within a portfolio.

Sunil Krishnan

We have tended to hold strategic investments in gold in many portfolios, but investors should be clear about why they own it.

Gold is not a guaranteed short-term hedge against inflation. A surprise rise in inflation can weaken overall risk appetite, prompting investors who have made money from gold to take profits and causing its price to fall.

Many conventional investments assume a degree of continuity in the financial system—for example, that central banks will conduct monetary policy much as they did last year, or that governments will take a similar approach to borrowing and spending. We are now in a period of greater uncertainty about those foundations, which is generally supportive for gold.

However, we have recently reduced our tactical exposure. Bond yields and cash rates have risen, and investors often compare cash, bonds and gold when deciding how to protect the growth assets in their portfolios. Higher interest rates on cash and bonds can be a headwind for gold.

We will retain a strategic position, but there may be more attractive moments to increase it aggressively.

What can hedge against inflation besides bonds and equities? (36:00)

Victoria Scholar

Are there useful hedges against inflation if bonds and equities are likely to move in the same direction?

Sunil Krishnan

Since the start of the year, we have increased our investments in commodities, including exposure to physical commodity indices and commodity producers.

For the time being, investors’ inflation expectations are likely to remain closely linked to energy prices. That could involve European gas rather than US crude oil, but energy pricing in the broader sense will be important to how investors perceive inflation risk.

We therefore believe energy producers can provide an attractive way to manage that risk, whether through individual companies or indices representing the sector.

How should investors divide a portfolio between cash, bonds and equities? (37:05)

Victoria Scholar

Katie, one investor asks how they should allocate a portfolio between cash, bonds and equities. The answer will depend on factors such as their age and appetite for risk, but how should they approach the decision?

Katie Trowsdale

It is a difficult question because the answer depends entirely on the individual. In my own pension, for example, I would typically hold equities because I have a very long investment horizon. If I were speaking to my mother, a 60/40 portfolio might be a useful starting point.

Other asset classes can also play important roles when inflation is high. These include infrastructure, where earnings are often linked to inflation, and inflation-linked bonds.

The appropriate allocation depends on your appetite for risk, age, investment horizon and the assets you hold outside the portfolio.

Closing remarks (38:31)

Victoria Scholar

We have covered a great deal in 38 minutes. We could have devoted an entire webinar to central banks alone.

Thank you to our panellists, Sunil Krishnan, Head of Multi-Asset at Aviva Investors, and Katie Trowsdale, Head of Public Market Solutions at Aberdeen.

You can watch the webinar again or share it on YouTube. We would also love to hear your feedback. You’ll receive an email later today, and your responses will help us make future sessions as useful and relevant as possible.

Finally, if you enjoyed today’s webinar and do not already subscribe to our YouTube channel, please click the subscribe button. Thank you, and we hope to see you again soon.

Forecasting when a market bubble might burst is extremely difficult. Investors who reduce their exposure too early can miss substantial gains.

The panellists suggested focusing on diversification instead. They are also watching for signs that major technology companies are reducing their spending on AI infrastructure, which could indicate that the current investment cycle is beginning to change.

The panellists remained positive about emerging markets and Asia over the longer term, despite their recent strong performance. More attractive valuations may offer opportunities beyond the dominant US technology companies.

Japan could also benefit from improving corporate governance and companies making better use of the cash on their balance sheets. However, recent gains mean that performance could slow in the short term.

Gold can help diversify a portfolio during periods of uncertainty about monetary policy, government borrowing and the wider financial system. However, it is not guaranteed to rise whenever inflation increases.

Higher returns from cash and bonds can also make gold comparatively less attractive because it does not produce an income. The panellists therefore viewed it as a strategic diversifier rather than a reliable short-term inflation hedge.