2026 Midyear Market Outlook: Five Shifts Reshaping Markets

What’s next for markets in 2026
Competing forces drive a broader, more complex opportunity set

Markets have been anything but stable in the first half of 2026. A sequence of geopolitically driven shocks has collided with surging artificial intelligence (AI) investment, robust corporate earnings, and solid U.S. economic growth. Risk assets have remained relatively strong amid these crosscurrents. But the danger for investors is mistaking resilience for calm.

Many of the themes we identified at the start of the year have broadly played out: AI-driven growth, broader equity market performance, and continued strength in credit, even with upward pressures on bond yields. Macro forces are now driving a new and more dispersed opportunity set as the AI trade moves into physical sectors and geopolitical fissures reshape the global economy. The market regime is changing.

Revisiting our 2026 expectations
We were right that equity market leadership would broaden beyond mega-cap tech, but war-driven shocks have challenged our thesis on non-U.S. equities.

Nearly halfway through 2026, we looked back at the themes from our Global Market Outlook published last November. Many of the key trends we identified heading into this year, such as continued credit market resilience and broader equity market leadership, played out largely as anticipated.

Regional trends proved to be more mixed, however. While non-U.S. equities periodically outperformed, the bullish case for non-U.S. stock markets has weakened in the wake of the energy supply shock.

Geopolitical outlook
Rising global tensions are spurring reinvestment in domestic capacity and a broader shift toward economic fragmentation.

Policymakers worldwide are prioritizing energy security, domestic production, and supply chain leverage over efficiency and integration. This will likely widen regional divergences as globally exposed and trade-sensitive sectors face pressure. While markets have remained relatively strong this year, continued economic fragmentation is likely to drive a more differentiated and volatile environment.

Global supply chain pressures have spiked this year
Energy shocks and AI demand are lengthening delivery times

As of April 30, 2026.
Source: Global Supply Chain Pressure Index (GSPI), Federal Reserve Bank of New York.
Notes: GSCPI readings for the most recent months can be revised as realized data become available, replacing the imputed values generated through principal component analysis. Further, for some series, mainly the BLS airfreight cost indices, each new release comes with revisions to up to twelve months of previous data. Thus, revisions can have an impact up to a year back in time.

Inflation outlook
The fight against inflation looks increasingly difficult as a manufacturing revival, fiscal expansion, and policy shifts introduce new risks.

Central banks are abandoning or reversing rate-cutting cycles amid the current energy shock, and the specter of stagflation further complicates monetary policy in some countries. At the same time, a global manufacturing recovery and rising industrial prices are adding to inflation pressures. Markets appear to be underestimating the longer-term inflation risks.

What happens when supply chains are disrupted?
Potential impacts of the energy shock on inflation, growth, and interest rates

Energy outlook
Energy scarcity is reshaping supply chains and opportunities in commodities-related sectors.

War-driven supply shocks have exposed fragile energy markets, resulting in structurally higher prices, regional shortages, and rising demand for different sources of energy. In this new environment, the themes of energy security and diversification—in addition to critical minerals production—lead to compelling investment opportunities.

Oil markets were tightening before the Iran war
Rig count was falling despite elevated prices

As of April 30, 2026. Sources: Baker Hughes, West Texas Intermediate oil price.

AI outlook
AI is transitioning from a concentrated technology trade into a wider industrial and infrastructure investment cycle.

As hyperscaler spending on AI accelerates, investment opportunities are expanding beyond semiconductors into infrastructure and industrial beneficiaries poised to capitalize on rising power, connectivity, and operational demands. But selective approaches toward the AI trade—rather than simple participation—will likely prove beneficial.

AI capex continues to soar
Hyperscaler capex, trailing 4-quarter total

As of May 15, 2026.
E=Estimates.
K=1000.
The specific securities identified and described are for informational purposes only and do not represent recommendations to buy or sell any security. For illustrative purposes only. Estimates are consensus estimates. Actual outcomes may differ materially from estimates. Estimates are subject to change. Hyperscalers are cloud-service providers that operate at an extremely large scale. This is a sample of U.S. hyperscalers and is not an all-inclusive list. Source: T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.

Market leadership outlook
The conditions that supported market concentration are shifting, expanding the opportunity set beyond the past cycle’s winners.

The era dominated by scale and asset-light business models is giving way to a new equilibrium. As AI infrastructure spending has rewired market dynamics, leadership has begun to broaden across sectors and geographies. Active investors who can distinguish between capital investment that enhances returns and spending that dilutes them should be well positioned to take advantage of this shift.

The great rotation
Returns may shift toward infrastructure providers

Analysis by T. Rowe Price. For illustrative purposes only. Actual outcomes may differ materially.

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