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Q1 2026

Capital Markets Outlook

January 2026



 

Highlights

Macro
  • Global economy likely to remain resilient; AI adoption could boost growth
Rates
  • Potential for a “Jobless Recovery” could lead to further cuts under Fed’s dual mandate
Credit
  • Investment-grade corporates can help diversify investors’ credit allocation

  • Technicals and fundamentals remain supportive of High-Yield.
Emerging-Market Debt (EMD)
  • We see opportunities in EM corporates.
Equity
  • 2025 equity performance capped off the strongest three-year period since the buildup of the tech bubble in the 1990s

  • Global stocks advanced, led by Europe and Emerging Markets
 
  1. Rates
  2. Credit
  3. EMD
  4. Equity

Macro

Global Economy Likely to Remain Resilient; AI Adoption Could Boost Growth

Reduced Policy Uncertainty, Easier Monetary Policy and AI Adoption Could Continue to Support the Global Economy

As of December 31, 2025
Source: Statista and AB

The US Could Benefit the Most from AI Adoption
Data center count*

As of November 30, 2025
Source: Statista and AB

Current analysis and forecasts do not guarantee future results.
*Estimate likely to include enterprise/on-premise data centers and colocation (third-party facilities that rent space/power/cooling) in addition to hyperscale cloud data centers
†Other Top 10 countries include: UK, Germany, China, Canada, France, Australia, India, Japan, and Italy.

Rates

Navigating Global Rates

We Believe Hedged Global Yields Offer Attractive Pickup to US Treasuries
Percent

As of December 31, 2025
Source: Bloomberg and AB

Australia 10-Year Trades Wide Relative to the US
Percent

As of December 31, 2025
Source: Bloomberg and AB

We Expect the JGB Curve to Flatten
JGB yield curve (percent)

As of December 31, 2025
Source: Bloomberg and AB

Past performance does not guarantee future results.
JGB: Japanese government bond. Left display is using the countries’ respective 10-year yields hedged to the US dollar; middle display is using the following indices: GACGB10 for Australian 10-year and USGG10YR for US 10-year; right display is using the following indices: GJGC10 for 10-year JGB and GJGC30 for 30-year JGB.  

Credit

Investment-Grade Corporates Can Help Diversify Investors’ Credit Allocations

IG Fund Flows Remain Robust
US IG corporate bond flows (billions)

As of December 31, 2025
Source: Bloomberg, J.P. Morgan and AB

Yields Are Compelling, While Spreads Are Still Tight
Percent

Average since January 1, 2003
As of December 31, 2025
Source: Bloomberg, J.P. Morgan and AB

Long-End Bonds Are Driving Spread Tightness; We Prefer Intermediate Bonds
OAS (basis points)

Index represented by Bloomberg US Corporate
As of December 31, 2025
Source: Bloomberg, J.P. Morgan and AB

Past performance does not guarantee future results.
IG: investment-grade; OAS: option-adjusted spread
*2025 flows through December 19, 2025

EMD

We Continue to See Opportunity in Emerging Markets

EM Corporates Offer Strong Risk-Adjusted Returns…
Sharpe ratios (2015–2025)

As of December 31, 2025
Source: Bank of America, Bloomberg, J.P. Morgan and AB

…with Lower Leverage than Comparable DM Corporates
Net leverage

As of June 30, 2025
Source: Bank of America, Bloomberg, J.P. Morgan and AB

PEMEX Outperformed over 2025 Due to Additional Sovereign Support
Relative yield to maturity

As of December 31, 2025
Source: Bank of America, Bloomberg, J.P. Morgan and AB

Past performance does not guarantee future results.
Agg.: aggregate; DM: developed-market; EM: emerging-market; HY: high-yield; IG: investment-grade; PEMEX: Petróleos Mexicanos (hard currency debt); Sov.: sovereigns. EM HY corporates represented by J.P. Morgan CEMBI Broad Diversified-HY; US HY by Bloomberg US High Yield; EM corporates by J.P. Morgan CEMBI Broad Diversified; European HY by Bloomberg Pan Euro High Yield; EM IG corporates by J.P. Morgan CEMBI Broad Diversified-IG; EM sovereigns by J.P. Morgan EMBI Global Diversified; US IG corporates by Bloomberg US Corporate Investment Grade; global aggregate by Bloomberg Global Aggregate; US aggregate by Bloomberg US Aggregate; and European IG by Bloomberg Pan European Aggregate Corporate

Equity

Global Stocks Advanced, Led by Europe and Emerging Markets

MSCI ACWI
January 2025–December 2025

As of December 31, 2025
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Regional Returns
January 2025–December 2025 (USD, percent)*

As of December 31, 2025
Source: FactSet, FTSE Russell, MSCI, S&P and AB

Past performance does not guarantee future results.
*Europe ex-UK represented by MSCI Europe ex UK Index, UK represented by MSCI United Kingdom Index, emerging markets represented by MSCI Emerging Markets Index, China represented by MSCI China A Index, Japan represented by MSCI Japan Index, US large-caps represented by S&P 500, Australia represented by MSCI Australia Index and US small-caps represented by Russell 2000 Index

Investment involves risk. Past performance is no guarantee of future results. This website has not been reviewed by the Securities and Futures Commission. The issuer of this website is AllianceBernstein Hong Kong Limited (聯博香港有限公司).

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