Equity Market Outlook

The reach and influence of the AI theme continues to expand throughout the economy, with the opportunity spanning a growing set of adopters across industries. Yet even as the economic opportunity widens, the equity market remains concentrated in growth-oriented leaders.


For investors with an income objective, this presents a challenge: Leaning too heavily on higher-yielding assets or segments of the market can reduce exposure to growth opportunities, while broad equity exposure contributes less to portfolio income than it has historically.


One potential solution: A systematic, active approach that can combine multiple levers to balance income and growth. Dividend opportunities can be evaluated alongside prospects for capital appreciation, just as option income can be considered alongside the market exposure investors want to retain.

History suggests fourth quarters have been the strongest quarter of the year for U.S. stocks. Yet every year has a unique set of variables at play that could influence market outcomes.


For Q4 2026, those questions include when the massive spending on AI may show a return and whether the strong AI-driven earnings momentum seen so far this year can continue. The answer to both questions suggests a positive outlook. Investors from the Fundamental Equities Global Technology team are already seeing the capex bear fruit. And consensus analyst estimates are pointing to continued strong earnings in the U.S. and beyond, as we outline in our full Outlook.


What are our investors watching as potential risks? Geopolitical uncertainties, Fed policy and the effect of higher rates on long-duration assets, and the sustainability of earnings breadth beyond AI.

The mining sector sits at the foundation of many of the most important growth themes shaping the global economy.

While investor attention has often focused on AI models, semiconductor and the cloud, the physical infrastructure underpinning these technologies is highly dependent on metals and materials. Data centers require copper, steel, power capacity, batteries and transmission infrastructure, while electrification and grid upgrades demand vast quantities of copper, aluminum and other critical minerals. This is driving a new, commodity-intensive investment cycle.

Alongside this growth driver is another development in the mining industry over the past decade: greater capital discipline. With this change, the sector has shown a willingness to pay dividends, making it a compelling source of income and growth potential.

Emerging market (EM) equities have been turbocharged by AI investment, benefiting the companies that meet demand in the main bottlenecks of memory and power. That opportunity continues strong. Yet our active investors also see compelling opportunities beyond AI in EM.

Where are they finding them? They identify three areas:

1. Materials: AI, electrification and energy storage are increasing demand for commodities in areas where Asia plays a key role.
   
   
2. Industrials: EMs, particularly those in Asia, are home to large industrial companies that specialize in mining equipment, and these should also benefit from the capex boom associated with materials demand.
   
   
3. Financials: They see selective opportunities in quality banks that have greater growth prospects than many developed market peers as well as more attractive valuations. Many of these can be found in Eastern Europe.