Seth Carpenter and Serena Tang discuss the investment strategy for 2026, highlighting a preference for equities over bonds, particularly U.S. assets, driven by a pro-cyclical policy mix and the focus shifting to asset-specific narratives like AI CapEx investment. They maintain a bullish outlook on U.S. equities, with a price target of $7,800 for the S&P 500, and are also positive on high-yield corporate credit due to monetary deregulation and technical factors. While U.S. equities remain a high conviction call, they also foresee U.S. Treasury curve steepening, driven by underpriced Fed easing and growth slowdown risks. Key risks include an abrupt end to the AI investment cycle, overheating sentiment, and potential changes in the Fed's reaction function, while they anticipate the dollar to continue its downward trend into the middle of next year, influenced by softer economic data.
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