Corporate Profits

Employment Data Point To Dovish Policy Surprises In 2026

Our key US fixed income views for 2026.

Indian stocks have further downside in absolute terms as profits disappoint. Their underperformance versus the EM equity benchmark, however, is late, which warrants a shift from underweight to neutral allocation.

In Section I, Doug explains how the sharp upward revision to second-quarter consumption in the final GDP estimate has reduced our recession conviction and could lead us to abandon our recession call altogether. The situation is fluid, though, as typified by the striking weakness of stocks in consumer-facing and cyclically exposed subindustries. In Section II, Doug and Global Investment Strategy’s Miroslav Aradski consider the implications of the AI investment boom.

In Section II, Doug and Global Investment Strategy’s Miroslav Aradski consider the implications of the AI investment boom.

The rush to build AI infrastructure is based on a false premise: that there are significant advantages to being the first to come to market.

The resilience of US non-tech companies' profitability has not been driven by top-line growth but by falling costs, which safeguarded profit margins. Presently, risks in US stocks outweigh the potential rewards – margin sustainability is uncertain while equity valuations are very stretched.

We see two risks that could spoil the rally in US risk assets: (1) a tariff-driven stagflation, and (2) a US Treasury tantrum. Our negative view on EM risk assets is primarily driven by the outlook for global trade, which is set to shrink in Q4 this year.

US TMT stocks have been delivering miraculous profit performance. Yet, outside US large tech, global equity fundamentals and technicals are troublesome. A near-term USD rebound should be faded.