The US economy remains remarkably strong despite a slight slowdown in recent months. Investments in artificial intelligence continue to be a key driver of growth. Major technology companies are consistently announcing new AI projects, boosting productivity and contributing an increasing share to GDP. In addition, the large government spending programs that have been approved will support growth in 2026. We therefore expect an acceleration in economic activity during the first half of 2026, and we also expect equities to continue outperforming bonds, says Philipp Bärtschi, Chief Investment Officer at the private bank J. Safra Sarasin.
At the same time, higher import tariffs and uncertainty surrounding US trade policy are putting pressure on corporate profits and employment. Inflation remains above the Federal Reserve’s target but is not rising faster than expected. The Fed is likely to maintain its cautious approach, focusing primarily on the labor market, and is expected to cut interest rates again in December to support growth.
In the eurozone, the manufacturing sector remains weak, while the service sector is performing somewhat better. Political uncertainty, US tariffs, and the strong euro continue to weigh on export-oriented economies. Confidence indicators improved slightly in October, partly due to the temporary resolution of the political crisis in France. Looking ahead, the outlook is moderately optimistic, mainly because Germany’s planned fiscal spending should stimulate growth in 2026. However, investment and industrial orders remain subdued for now, as companies are still hesitant to expand production capacity.
Bonds – Markets Under Observation
Due to slower employment growth in the United States, investors expect the policy rate to be around 3% by the end of 2026. This corresponds to the lower bound of the so-called neutral rate. As the outlook for 2026 remains positive, we see little room for further declines in interest rates. This means the potential for falling bond yields is limited.
In Europe, inflationary pressures remain low, making government bonds somewhat more attractive. We currently prefer bonds with medium-term maturities. While there are some signs of tension in credit markets, we see no structural reason to underweight corporate bonds. Nonetheless, increased vigilance remains advisable.
Equities – Technology Remains the Growth Engine
Global equity markets have performed strongly in recent weeks, particularly in emerging markets. US and European equities also posted solid gains, supported by better-than-expected corporate earnings. Of the companies in the S&P 500 Index, more than three-quarters have reported their quarterly results, and around 80% have exceeded earnings expectations.
Financial and technology companies stand out with robust profits. Within the IT sector, earnings growth remains the strongest, driven by the ongoing AI trend. This trend is expected to remain the main driver of profit growth in 2026, although high investment levels could temporarily dampen profitability. Other sectors are likely to benefit gradually from incorporating AI into their business models. Identifying the ‘AI winners’ within each sector will become increasingly important.
Investment Strategy – Taking on Slightly More Risk
Following strong market performance in recent weeks, we have slightly increased our equity allocation. We continue to expect equities to outperform bonds. Although markets could be prone to a correction after several months of gains, the overall outlook remains positive, supported by low interest rates, seasonal trends, and a favorable macroeconomic environment.
Trade risks between the US and China have eased thanks to progress in negotiations. We maintain a neutral regional allocation and a balanced positioning across different bond segments. Our position in gold remains unchanged, though we realized part of the accumulated gains in October following the sharp price increase.
