“Inflation is relatively stable despite rising short-term expectations, and the US dollar is expected to remain broadly flat. The outlook for US equities is constructive (with an S&P 500 target of 7,000–7,400), with opportunities in small caps and emerging markets, although volatility and performance dispersion are likely to persist, favouring active management,” he notes.

“In fixed income, the focus is on yield through short-duration bonds and credit, with municipal bonds appearing attractive, while investor sentiment is becoming more cautious but not yet at extreme levels.”

He details the outlook across macro, equities, fixed income and sentiment below:

Our forecast for 2026 real gross domestic product (GDP) growth is 2.5% (based on our Global Investment Management Survey^[1]), which is above the Federal Reserve (Fed) forecast of 2.3% and the Wall Street consensus of around 2%. The main drivers of our GDP forecast are the continued capital expenditure (capex) spending by big technology firms, a resilient consumer (Delta Air Lines CEO Ed Bastian discussed both higher demand and revenue in the quarter¹) and expected higher tax refunds in 2026 relative to past years, not to mention the possibility of future interest-rate cuts.

The duration of the current Middle East conflict is the primary risk to our forecast. Higher oil prices resulting from the conflict work like a tax on the consumer, and the negative impacts of higher oil prices will broaden over time.

We expect the Fed to cut rates twice in 2026 and core personal consumption expenditures (PCE) to remain stable in the 2.5% to 3.0% range. The last tick for core PCE data came in at 3.1% for January. The U-3 unemployment rate was 4.4% for February, just off the recent high print in November of 4.5%, which was the highest level since October of 2021. Additionally, last week the Producer Price Index (PPI) data was hot and probably reflects some tariff pass-through.

The conflict in the Middle East, should it persist and drive oil prices higher for longer, could put the Fed in a box with respect to its dual mandate.

Inflation expectations have moved up in the near term. One-year inflation breakeven rates are now 5.10%, an alarming move to say the least, although it is worth adding that there is a first-quarter seasonal component that has historically affected the data. No doubt, higher oil and natural gas prices are driving some or even all of this move. Two-year breakeven rates are 3.32%. Five-year breakeven rates are 2.68%. These numbers represent the bond market pricing annualized inflation expected over the coming one, two and five years. The shorter-term numbers indicate concerns, certainly, but the longer-term, five-year number is still anchored.

On the currency front, we think the US dollar will be essentially flat for the year despite the recent volatility. The US Dollar Index (DXY) last week traded at US$99.17, which is at the high side of its 11-month range, defined as $96 to $100. Many investors are concerned about the US dollar losing value, and some believe the dollar has recently weakened materially, but the fact is that the US dollar is at the same level today as it was in April of 2025 and higher than it was in early July of 2025, late September of 2025 and mid-January of 2026.

Equities

We are constructive on US equities and have established a target range of 7,000 to 7,400 for the S&P 500, based on expected earnings-per-share growth of 8% to 13% year-over-year (based on our Global Investment Management Survey^[1]). We don’t expect this current geopolitical conflict to impact our outlook unless oil trades north of $100 and stays there for months. We expect high levels of volatility to persist in the near term.

Right now, this tape feels like death by a thousand paper cuts. We are held hostage to the situation in the Middle East and expect to be in this pattern until an off ramp comes into view. Let’s look at year-to-date (YTD) performance. Some of this might come as a surprise. Through the close of March 19, 2026 the S&P Midcap Growth Index was up 5.05%, the Russell 2000 Value was up 3.43%, the S&P Midcap 400 Index was up 2.29%, the Russell 1000 Value Index was up 2.13%, the S&P Equal Weight 500 was up 0.97% (the Equal Weight Index is a measure for the average stock, which means the average stock is up), and the Russell 2000 Index was up 0.79%. That’s the good news. On the downside, the Magnificent Seven basket (the stocks of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) was down 9.46%, the Russell 1000 Growth Index was down 7.87%, the S&P 500 Index was down 3.23%, and the Russell 1000 Index was down 3.16%. The downside appears manageable for diversified portfolios but is probably painful for anyone not diversified. The dispersion in returns sets up an attractive environment for active stock pickers, in my view.

Performance outside of the United States for YTD to last week, the MSCI Latin America Index was up 7.37%, the MSCI Emerging Markets Index was up 2.02%, and Japan (Nikkei 225 Index) was up 2.06%. The MSCI Europe Index was down 3.80% and India (Nifty 50 Index) was the laggard, down 14.72%. All of the international return data is in US-dollar terms.

Our outlook for forward earnings growth makes us bullish for US small-cap stocks and emerging market (EM) equities.

Let’s talk about where we are right now and how to deal with this conflict and the volatility it is creating. It’s time for discipline over emotion; it’s time to have a plan. If you have cash to put to work, keep watch on the S&P Volatility Index (VIX). If the VIX closes above 30 on a weekly basis, I think it’s probably an attractive time to dollar-cost average into equities. This is step one.

Since 1990, when the VIX closed at 30 or higher on a weekly basis, forward returns for the S&P 500 were positive. Ranking three-month forward returns for those periods, the median was 6.85%, and the hit rate was 80.28% for positive returns. The six-month median forward return was 15.15%, and the hit rate was 80.28%. The one-year median forward return was 23.46%, and the hit rate was 88.57%. Again, favor discipline over emotion.

Similarly, if market movements get out of hand, and the VIX index closes over 50 on a weekly basis, in my playbook it becomes time to be even more active. This is step two. Rather than dollar-cost averaging, my approach is to buy quality stocks on price weakness, even baskets like the Magnificent Seven. In the periods since 1990 when the weekly VIX closed above 50, the median forward return one-year was 24.06%, with a 100% hit rate. Again, I emphasise discipline over emotion.

Consider the “Rule of 16” as a forecasting tool to help gauge the magnitude of potential price movements when the VIX is elevated. The calculation is (VIX level/16) = likely price movement in percentage terms. A VIX reading of 32 (32/16) = 2% movement.

At the bottom line, our Institute believes it’s best to have a diversified equity playbook including large, mid, and small-cap exposure in the United States with a balance of growth and value. The same can be said for ex-US equity exposure. We favor positions in EMs and developed international markets. To act on the broadening theme, consider reducing concentration and diversifying portfolio exposure. The VIX index parameters described above can be helpful for deciding further action.

Fixed income

We expect US 10-year Treasury bond yields to trade in a range of 4.0% to 4.25% during 2026. Last week, the yield rose above the high side of that range, to 4.29%. The two-year Treasury yield discussed in the Macro section also punched above its range, trading at 3.85% at the end of last week. The US yield curve has flattened recently, with the two-year-to-10-year spread falling to 45 bps. We expect bull-steepening of the yield curve in 2026.

We expect short-duration fixed income mandates and corporate credit to outperform cash during 2026. Considering our views on US 10-year Treasury yields, we do not expect duration to be a significant driver of total return this year. Rather, all-in yield capture seems to be the play.

Credit spreads have made big moves in the last week. Investment-grade (IG) spreads (one-year/three-year option-adjusted spreads, or OAS) are 64 bps over Treasuries. High-yield (HY) spreads, as proxied by the Bloomberg US Corporate HY OAS, reached 306 bps over Treasuries in the past week. Corporate fundamentals appear healthy to us, although there is stress in the system now.

Historically, when IG spreads trade at 200 bps over Treasuries, forward returns for the Bloomberg US Aggregate Index have been positive over the coming three, six, nine, and 12 months. The spreads have not risen to that threshold, obviously, but if they reach that level, this historical data suggests it may be an attractive time to invest. Similarly, when HY spreads trade at 600 bps over Treasuries, forward returns have been positive three, six, nine and 12 months out. Again, markets are not at that point, but analysing this data offers some historical context.

We are bullish on municipal bonds again this year and find taxable-equivalent yields to be attractive, along with robust fundamentals. Importantly, the increased supply that hit the marketplace in 2025 has run its course for now, and muni bonds have been performing well since last August. We think this positive trend can continue.

Sentiment

The percentage of bullish investors in the latest AAII Investor Sentiment survey dropped to 30%, down two ticks from the prior week’s reading. The percentage of bearish investors rose again and is now at 52.0%, up six ticks from the prior week.

Neither of these readings is at an extreme, but sentiment is growing more cautious by the week.

————–

Notes:
[1]: Global Investment Management Survey

Source of data (except where noted) is Bloomberg as of March 20, 2026. There is no assurance that any forecast, projection or estimate will be realized. An investor cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future performance. Important data provider notices and terms available at www.franklintempletondatasources.com. The Franklin Templeton Institute Global Investment Management Survey is a biannual outlook survey designed to give a view across our investment teams. The Franklin Templeton Institute identifies the median across the survey answers and develops the outlook. The survey received responses from around 200 portfolio managers, directors of research and chief investment officers, representing participation across equity, private equity, fixed income, private debt, real estate, digital assets, hedge funds and secondary private markets. Each of our investment teams is independent and has its own views.

The post Franklin Templeton stays moderately positive for 2026, US GDP growth expected at 2.5% appeared first on AdviserVoice.

In a new paper, Chris Galipeau, Senior Market Strategist and Lukasz Kalwak, Market Strategist at the Franklin Templeton Institute have examined how financial markets and the broader macroeconomic backdrop evolve when the Fed resumes cutting rates after a pause.

They noted, “Historically equities appear likely to grind higher amid rising volatility. Not all cuts are the same. Early cuts in a cycle historically have been bullish and come with relatively low volatility. Interest-rate cuts after a pause, by contrast, have been typically associated with higher short-term volatility, but they have nonetheless averaged strong one-year returns across equity styles. On average, the Russell 2000 Index small caps gained about 20% and the Nasdaq Composite technology stocks gained about 25% one year after such cuts

“Fixed income also benefits. Fixed income has historically participated in these rallies as well, with US Treasuries returning around 6% and corporate bonds around 8% in the year following a pause-cut

“GDP growth has typically continued, and although corporate earnings have made only minor progress, price multiples have expanded significantly. Post-pause cuts have often coincided with P/E multiples expanding by over 20% within the first year, underscoring the powerful role of monetary easing in driving equity prices higher despite economic challenges.”

“Probably the most surprising finding of our study is that interest-rate cuts following a pause have not historically provided a strong boost to corporate earnings. In the current environment, one could argue that the Fed is already late in making its next cut, with a softer labor market and the drag from tariffs already likely to weigh on corporate earnings. That said, it is worth remembering that US corporate earnings have risen for seven consecutive quarters at a pace of at least 8.5%,4 suggesting that the resilience of US firms may be underappreciated in this framework.

“Still, the historical record speaks for itself: Much like equities, earnings outcomes have been highly variable, ranging from robust +37% earnings-per-share (EPS) growth in 2003 to a sharp -24% contraction in 2008.”

The post How US equities and US fixed income performed with a resumption of Fed easing appeared first on AdviserVoice.

The US equity market has now corrected by approximately 10%, prompting investors to question whether this downturn presents an attractive buying opportunity or signals deeper underlying risks.^[1]

“To address this question, we shift our focus to technical and sentiment indicators, which form an essential part of our investment decision-making toolkit,” Chris Galipeau, Senior Market Strategist Franklin Templeton Institute notes.

“By analysing market price action, we aim to better understand investor behaviour. Our focus is on asset prices. We begin with an historic perspective. Since 1950, the S&P 500 Index has experienced 38 corrections, defined as declines of 10% or more. Of these, 26 occurred during periods of positive economic growth, while 12 took place during recessions. For each of these corrections, we then calculate the S&P 500’s returns over the subsequent 12 months and classified those outcomes based on whether they occurred during a recession or not. We then constructed average return trajectories to illustrate the typical S&P 500 performance following a 10% (or greater) correction.

“On average, the market rose 13%, on average, from its trough following non-recessionary market corrections.

“Our findings also reveal a key tactical consideration. On average, the market has bottomed within a few days of a 10% drawdown, irrespective of whether recession followed or not. And while market recoveries during recessions have tended to be weaker, during non-recessionary corrections the market typically has rebounded and set fresh highs over the ensuing 12 months.

“Notably, the ongoing correction has been rapid. The S&P 500 has shed 10% of its value in just 16 days, making it the fifth-fastest correction since 1950.”

That is unsettling. But history does not suggest that the speed of the decline impairs the recovery, he says.

“Beyond history, there are other reasons to believe the market may soon regain its footing. The recent market selloff compressed valuation multiples. For example, the forward price-to-earnings (P/E) ratio of the S&P 500 has slipped from 22.5 to 18 during this correction. Similarly, forward P/Es for technology and small-cap indexes have declined to one-year lows. Falling multiples indicate that stock prices are falling faster than earnings expectations. For long-term value-oriented investors, lower valuations present an opportunity to buy fundamentally resilient companies at a discount.

“Moreover, investor sentiment has turned sharply negative, as reflected in recent AAII surveys, where the percentage of bears has climbed to 60%, a level reached only a few times in history, and typically around major market bottoms.

“Interestingly, extreme pessimism is typically only seen in corrections of 20% or greater but is already present after today’s 10% decline. Sentiment is already at extreme levels.

“History suggests that fear often creates opportunities for long-term investors willing to accept near-term volatility in exchange for future price appreciation. With valuations now more attractive and sentiment deeply negative, this may be one of those moments.

“Other measures of sentiment concur. Our proprietary Fear & Greed Index (Exhibit 1) signals that investors are deeply concerned, which is typically a good contrarian indicator. Similar readings in the past have marked attractive entry points to add equity exposure.”

Exhibit1: Fear and Greed: Z-Score Model

Similarly, periods of elevated volatility often create dislocations in and within markets, creating opportunity for long-term investors. This past week volatility spiked, with the CBOE VIX index^[2] reaching an intraday high of 29.57 on consecutive days, a level historically associated with heightened fear and uncertainty. But as history shows, when volatility reaches extremes, it has often marked attractive entry points for investors.

President Trump has recently suggested that he is willing to accept short-term economic pain – even a recession – to achieve longer-term policy goals. As a result, recession fears have become one of the main risks weighing on Wall Street. “However, we believe it is far from clear how a recession would help resolve trade imbalances, nor do we see a recession as a likely near-term outcome,” he says.

“In fact, a snapshot of February’s incoming data paints a very different picture from the increasingly negative sentiment. Remaining data-driven, we note that the most recent employment data confirm that the job market remains on solid footing. Moreover, as the latest Consumer Price Index report showed, consumer prices rose at a slower pace than expected in February, keeping the door open for further rate cuts. Currently, markets are pricing in three cuts in 2025.”

Recoveries have tended to be faster and more substantial following non-recessionary corrections, while corrections that occur during recessions have typically more prolonged. Therefore, we believe it is important to emphasise that the Institute does not expect the US economy to enter a recession.

“Notably, despite the recent market selloff, the distribution of market returns continues to broaden, underscoring our key equity investment thesis of 2025. The equal-weighted S&P 500 Index has outperformed both the market capitalisation-weighted S&P 500 Index and the Nasdaq this year by 2.36% and 4.45%, respectively.^[3]

“Despite noisy headlines and elevated geopolitical uncertainty, value has outperformed growth and there has been a significant rotation across different segments of the market. Going forward, we expect a broadening trend to continue in the United States, as well as globally (e.g., European outperformance).

“In sum, corrections offer opportunity. Moreover, if we assume the US and world economies avoid a recession, the recent market correction and bout of volatility present an ideal opportunity for long-term investors to increase equity exposure to our broadening market theme.”

———

Notes:
[1] S&P 500 drawdown from February 19, 2025 to March 13, 2025 was -10.13%. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
[2] VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange’s CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. Past performance is not an indicator or a guarantee of future performance. Indexes are unmanaged and one cannot invest directly in an index. Important data provider notices and terms available at www.franklintempletondatasources.com.
[3] Source: Bloomberg. Analysis by Franklin Templeton Institute. As of March 14, 2025.

The post Does recent market volatility spell opportunity? appeared first on AdviserVoice.

As a result, the US equity market has substantially outperformed Japan, Europe and emerging markets as a whole.

Chris Galipeau, Senior Market Strategist and Lukasz Kalwak, Senior Analyst at the Franklin Templeton Institute note (in the attached detailed paper) noted “The global earnings situation is changing. US earnings should still be strong, but we think emerging markets offer even better performance potential. Equities in Japan and Europe also look stronger to us than they have in the past 15 years.”

“Valuations matter along with earnings. While earnings drive stock prices over time, prices fluctuate as estimated earnings valuations oscillate for extended periods. In our view, long-term investors should consider various valuation methods as part of their toolkit.

“Another valuation method to consider is the price of stocks relative to earnings growth, which is known as the PEG ratio. We can use this measurement for both historical and forward-looking comparisons. We have compared the current price relative to the average earnings growth of the past 10 years, as well as the price relative to expected earnings for 2024, 2025 and 2026.2 In the historical comparison, while all markets appear to be undervalued relative to the past 10 years, the gap is the largest for emerging markets.

“Looking forward, emerging markets also appear to have the most attractive PEG ratios relative to expected earnings through 2026.

“When comparing equity opportunities, we believe investors may be well served to consider future earnings growth along with valuation measures. Based on our comparisons emerging markets, as represented by the MSCI Emerging Markets Index, show the strongest forward earnings growth combined with the lowest valuation backdrop.

“Regarding valuation, emerging markets appear undervalued, whether one considers the more traditional P/E multiple or if one also contemplates the forward price-to-earnings-growth measure (PEG ratio).”

The post Where in the world should investors look for earnings? appeared first on AdviserVoice.