MARKETS are heading into the final quarter of 2026 with investors having to balance resilient corporate earnings against a mix of political, fiscal and geopolitical risks.
At the same time, attractive real yields and structural themes such as artificial intelligence (AI) are opening up opportunities across equities, bonds and commodities, even as higher-for-longer interest rates remain a consideration.
Julius Baer head of research Christian Gattiker says the firm is favouring a broader investment approach going into year-end, with opportunities spanning quality corporate debt, selected emerging market credit, a wider range of equity markets and gold.
“Our outlook remains constructive overall. In fixed income, we favour maintaining duration exposure with a focus on quality corporate debt, while adding inflation protection through Treasury inflation-protected securities (TIPS) and selectively increasing resilient emerging market credit,” he shares.
“In equities, we continue to broaden exposure to financials, healthcare, quality mid-caps, peripheral European markets, Japan, Switzerland, and selected Chinese technology names. In commodities, we reiterate our constructive stance on gold and expect energy prices to moderate as supply conditions improve,” he adds.
While the weeks ahead of the US mid-term elections next month may prove unsettled, Gattiker says his group’s broader message remains unchanged: “Stay invested, diversify broadly, and use setbacks selectively to add risk.”
Stay invested
The strategy reflects a view that investment environment is unlikely to return to the ultra-low inflation and interest-rate conditions that characterised much of the pre-Covid era.
Julius Baer says inflation and interest rates are likely to settle at higher levels, with reshoring, defence spending and geopolitical fragmentation adding pressure to prices.
At the same time, AI-driven productivity gains could eventually help offset some of these pressures.
“Rather than a return to ultra-low inflation, we expect somewhat higher but more stable inflation and interest rate levels ahead,” the wealth management group points out in its recent outlook report.
This backdrop is also encouraging investors to look beyond the narrow group of stocks that dominated the first half of 2026. Equity returns are beginning to broaden as earnings growth becomes more widespread.
Julius Baer favours financials, healthcare and quality mid-caps, while maintaining a structural preference for AI. Within technology, it prefers semiconductors and selected software companies over hardware. Japan remains favoured for its AI leadership and corporate reforms, while Singapore offers defensive characteristics and reform initiatives.
China presents longer-term potential through its under-owned AI opportunity, while India benefits from domestic resilience.
Fixed income remains an important portfolio anchor, particularly as real yields stay attractive.
“Attractive real yields continue to support fixed income as a core portfolio anchor into year-end.”
Julius Baer favours investment-grade corporate bonds in the five-to-10-year segment while remaining disciplined on credit risk. TIPS provide additional protection if inflation proves stickier than expected, while emerging market debt offers income and diversification.
Gold also remains part of the strategy, supported by central bank demand, geopolitical uncertainty and high public debt. Julius Baer expects short-term volatility but maintains its positive view. Silver, meanwhile, faces softer industrial demand following its speculation-driven rally.
In private markets, higher interest rates make manager selection increasingly important. Julius Baer favours value-creating private equity, European direct lending, infrastructure linked to structural growth and inflation resilience, as well as low-volatility multi-strategy hedge funds.
Four factors
For Columbia Threadneedle senior economist, multi-asset solutions, Anthony Willis, the fourth quarter (4Q) is likely to revolve around four issues: US politics, fiscal policy in the United Kingdom and France, developments involving Iran and the corporate earnings outlook.
“Together, they point to a period in which political and inflation risks remain elevated, but the underlying economic and corporate backdrop continues to offer support.”
The US mid-term elections in early November could change the balance of power in Washington, with expectations pointing to Democrats taking control of the House while the Senate remains closely contested.
A change in Congress would not necessarily result in an immediate change in fiscal policy, but it could place greater constraints on the administration. This matters as US government borrowing remains unusually high despite an economy that appears to have expanded at an annualised rate of more than 4% in the 3Q.
In Europe, fiscal policy is another key consideration. The UK Budget at end-October comes as higher bond yields raise debt-servicing costs and limit fiscal headroom. France faces a similar challenge, with a deficit above 5% of gross domestic product and political fragmentation complicating efforts to reduce it.
For investors, French government bonds remain particularly sensitive to the combination of fiscal adjustment and political uncertainty, with the coming presidential election adding another layer of risk.
Iran is another potential source of volatility. While the resumption of indirect United States-Iran talks is encouraging, Willis says there is little momentum towards a durable agreement. Any renewed disruption to trade and energy routes could push inflation higher, complicate the interest-rate outlook and add volatility to bonds.
Against these risks, corporate earnings provide an important source of support.
“Results have been strong so far in 2026, with both the breadth and scale of earnings growth exceeding expectations.”
3Q results are expected to provide another test of that resilience. Strong earnings could continue supporting risk appetite, although a firm economy also gives central banks room to keep monetary policy restrictive or raise rates if inflation remains stubborn.
“Our outlook remains constructive. Political developments, fiscal constraints and geopolitical tensions could generate bouts of volatility, particularly in rates and bond markets,” Willis says.
Broad opportunities
Allianz Global Investors (Allianz GI) takes a similar approach on equities, with its strongest conviction in emerging markets, followed by Japan, US equities and Europe.
The firm also sees opportunities in robotics, biotechnology and gold miners, while remaining neutral to cautious on developed-market government bonds because of sticky core inflation, fiscal concerns and questions over central bank independence.
European government bonds are preferred, although France remains a concern because of election risk.
In emerging-markets, Allianz GI favours bonds where real yields are high and fiscal conditions are favourable, particularly in energy-exporting economies. Its credit stance is broadly neutral, with a preference for higher-quality investment-grade exposure.
The AI theme is also expanding beyond graphics processing units as deployment and agentic applications change the physical infrastructure supporting computing.
Allianz GI points to rising rack density and copper constraints as drivers for optical interconnects, advanced materials and power systems. Electrification is also supported by data-centre construction, improving industrial orders and infrastructure spending.
Across Asia, hardware suppliers could benefit from architecture upgrades and component shortages, while China’s deep supply chains support AI adoption across infrastructure, models and applications.
India combines strong domestic consumption with favourable geopolitical positioning and a developing AI ecosystem, while Japan receives additional support from pro-growth policies and corporate-governance reforms.
Value stocks also have a role as higher nominal and real rates make relative valuations more important. Their different sector and factor exposures can provide a counterweight to crowded AI, momentum and long-duration growth positions.
In bonds, Allianz GI expects yield curves to steepen in the United States, Germany and Australia.
It favours TIPS as energy prices remain under upward pressure, and sees German Bunds as better value than US Treasuries at the short end, while finding UK Gilts attractive at the long end.
In emerging markets, it prefers oil exporters over importers and continues to favour Brazilian and Hungarian local bonds. With no strong short-term view on the US dollar, the strategy instead favours pro-cyclical and high-yielding currencies, while using selective low-yielding currencies for funding.
Across credit markets, Allianz GI continues to see carry as the key driver of returns, remains constructive on financials and consumer non-cyclicals, and is increasingly positive on selected AI hyperscalers after recent spread widening improves valuations.