Concerns about politics and policy are mounting
- 73% globally and 86% in the UK believe political dysfunction is a growing threat to market stability.
- 77% globally and 84% in North America believe the tariff environment will be a moving target into 2026.
But politics and tariffs aren’t the only concern.
Overall sentiment suggests that institutional teams may be bracing for big shifts in the macroeconomic landscape:
- 58% forecast an increase in unemployment
- 46% anticipate an uptick in corporate defaults
- 42% see higher inflation on the horizon
- 41% see prospects for higher housing prices
In terms of markets, institutional sentiment shows waning interest in US markets along with clear preferences for other regions:
- 76% plan to reduce (32%) or maintain (44%) allocations to US equities.
- 90% plan to increase (44%) or maintain (46%) allocations to Asia-Pacific stocks.
- 88% plan to increase (40%) or maintain (44%) allocations to European stocks.
In fixed income, institutional investors expect multiple rate cuts in 2026. But how much and when is less clear as concerns over price stability and rising unemployment leave only 7% to believe that rates will be on a smooth glidepath.
Smooth sailing is not likely for any market as institutions forecast increased volatility for stocks (59%), bonds (38%), and currency (46%).
Alternatives are taking center stage in portfolio plans as 65% project the 60:20:20 portfolio diversified with alternative assets to outperform the traditional 60:40 stocks and bonds mix. Private assets continue to be the primary focus for this sleeve of the portfolio:
- 39% will up allocations to private equity (39%)
- 38% will increase infrastructure investments (38%)
- 35% will add to private debt (35%)
- 27% will increase real estate (27%)
Institutions are looking further afield for diversification opportunities, and 36% plan to increase investments in cryptocurrencies. Even still, two-thirds (66%) of institutions think gold will outperform crypto in 2026.
Despite the potential headwinds, return expectations have not moderated. On average, institutions assume returns of 8.3% in 2026 – just two-tenths of a percent lower than their 8.5% average long-term assumption.
Faced with uncertainty at every turn, it’s difficult to find a strong consensus on much:
- Will a geopolitical shock spark market turmoil (49%), or will markets be indifferent (51%)?
- Will the US outperform (48%), or will Europe (52%)?
- Is it a time for long duration (52%) or short (48%)?
One place where sentiment is clear comes down to active investments (62%) to outperform passive (38%).
While prospects look uncertain, it’s clear that institutional strategy for 2026 is being shaped by powerful economic and market forces:
- Macroeconomics: Beyond the politics, institutional sentiment suggests the global economy may not be able to rely on consumers as they see consumer discretionary (18%) and consumer staples (22%) as the least likely sectors to outperform in 2026.
- Markets: After a long run-up in tech stocks, valuations (45%) are tied with inflation (45%) and interest rates (45%) as their top portfolio risk, with volatility (38%) and concentration risk (37%) closely following..
- Equities: Bullish sentiment on stocks is buoyed by hopes for artificial intelligence, which 65% predict will supercharge growth, even as 46% worry about a bubble.
- Fixed income: Consensus is split – 50% expect a smooth path down for rates, while 50% expect disruptions to the glidepath.
- Alternative investments: Private assets make up 78% of alternatives allocations as 64% say private offers higher return potential than public.
- Environmental, social and governance: investment grows as 58% of institutions seek alpha potential and enhanced risk control.
Ultimately, institutions have many obstacles to navigate in 2026. The hardest of which may be an unfamiliar macroeconomic scenario and potential geopolitical disruption.
