Our multi-asset investment views – May 2026
Our economists have updated their forecasts to reflect the impact of disruption in the Middle East and this has resulted in a reduction in the GDP forecast for 2026 from 2.9% to 2.5% and an increase in the inflation forecast from 2.4% to 3.3%. Essentially, we have moved in a more stagflationary direction although for now our expectation is that recession will be averted.
Given that corporate earnings momentum is still positive, we are still positive on equities with a bias towards technology as well as favouring UK and Canadian equities given their higher exposure to energy and resources.
The situation in the oil market remains highly binary and driven by geopolitical events. We maintain our positive view of agricultural commodities given that seasonal weather effects are likely to support demand/supply dynamics, and higher energy and fertiliser prices would have a lagged effect. We continue to like gold as we see it as a better defensive exposure than government bonds given our concerns about long-term debt sustainability.
The last month has seen rising bond yields as investors have focused on rising inflation risks. We are neutral on government bonds overall, as current yield levels now reflect some of the risks we’ve been concerned about (reminder: yields move inversely to prices). However, we retain our negative view on US bonds given the greater inflation risks there. Instead, we continue to favour Italian government bonds, where yields remain attractive, and also like Australian bonds, where the central bank has taken a more proactive approach to policy.
We remain negative on US investment grade debt as we do not believe that yield levels relative to cash are attractive given stagflationary risks and increasing issuance. We continue to like emerging market debt given better inflation trends and more orthodox policies.
All in all, stagflationary risks justify lower multiples but, for now, earnings momentum is still supportive of equities. We continue to keep a close eye on bond yields as interest rates are, at best, on hold with the risk of higher rates if we muddle through oil disruption in the Middle East.
🟢 Long / positive
🟡 Neutral
🔴 Short / negative
🔼 Up from last month
🔽 Down from last month
Main Asset Classes
🟢 Equities
We remain positive on equities, driven primarily by continued earnings strength, particularly in technology-related sectors. We continue to favour the US and selected Asian technology markets, while also maintaining exposure to UK and Canadian equities for diversification through energy and resource exposure.
🟡 Government bonds
We remain neutral. While inflation risks and higher-for-longer rates remain key concerns, the significant repricing in yields over recent months has improved valuations across several markets. We continue to favour selective exposure outside the US where compensation for risk appears more attractive.
🟢 Commodities
We remain positive on commodities, with a preference for agriculture where supply risks, weather disruption and higher fertiliser costs continue to support prices. We also maintain exposure to gold and selected resource-linked equities as portfolio diversifiers.
🔴 Corporate bonds (credit)
We remain negative on credit, particularly US investment grade, where the extra yield on offer over government bonds is minimal, despite the uncertain economic backdrop. We continue to prefer equities over credit given the stronger earnings backdrop and limited compensation for taking on corporate credit risk.
Equities
🟢 US
Our positive view is supported by strong earnings momentum, particularly within technology and AI-related sectors. While valuations remain elevated, earnings delivery continues to justify the concentration in large-cap technology.
🟢 UK
We remain positive on UK equities given their exposure to energy, materials and financials, which provide diversification away from the narrow US technology-led rally. Elevated commodity prices continue to support earnings across resource-linked sectors.
🟡 Europe ex UK
We retain a neutral view as weaker growth prospects and greater sensitivity to higher energy prices continue to weigh on the region. While earnings have held up better than expected, the macro backdrop remains challenging.
🟡 Japan
Despite improving domestic conditions, we continue to be neutral given ongoing uncertainty around Bank of Japan (BoJ) policy normalisation and higher global bond yields. Currency volatility also continues to limit conviction.
🟢 Global Emerging Markets (EM)1
We continue to be constructive on emerging markets, supported by resilient growth. Technology exposure across parts of Asia also continues to support the outlook.
🟢🔼 Asia ex-Japan: China
We have upgraded to positive as Chinese technology platforms are increasingly benefiting from the AI investment cycle, particularly across downstream applications and digital services. Valuations also remain less stretched than other AI-related markets.
🟢 EM Asia ex China
We are unchanged on EM Asia ex China, particularly Taiwan and selected technology-related markets, where AI-driven demand and earnings momentum remain supportive. We are becoming more selective following strong performance in Korea.
1Global Emerging Markets includes Central and Eastern Europe, Latin America, and Asia.
Government bonds
🔴 US
We remain negative as inflation risks and resilient nominal growth continue to create upward pressure on yields. While valuations have improved following the recent repricing, we remain cautious given ongoing concerns around inflation expectations and central bank credibility.
🟡 UK
Although yields have become more attractive, political uncertainty and persistent inflation risks continue to create volatility in the market – our view remains unchanged.
🟢 Europe
We remain constructive on European government bonds, particularly Italian government bonds (BTPs), where valuations already reflect a significant amount of macro risk. We continue to favour peripheral over core European government bonds.
🟡 Japan
The BoJ continues to move cautiously towards policy normalisation. Rising yields and still-negative real rates remain a headwind for Japanese government bonds.
🟡 US inflation-linked bonds
Inflation expectations have risen, but much of the near-term inflation risk now appears priced into breakevens following the recent move higher in energy prices. (An inflation breakeven rate is the difference between the yield of a standard nominal bond and the real yield of an inflation-linked bond of the same maturity).
🟢 Emerging markets local currency bonds
Given attractive real yields across several regions, we continue to favour selective exposure where fundamentals remain supportive.
Investment grade credit
🔴 US
Spreads (i.e. the yield differential over government bonds) remain narrow given stagflation risks. Public credit fundamentals are solid, but rising concerns about AI disruption and private credit spillovers are increasing pressure on the sector.
🟡 Europe
We remain neutral as European investment grade has a greater exposure to financials, where balance sheets remain strong, and the market has a lower duration exposure.
🟡Emerging markets USD
While spreads have become somewhat more attractive, the asset class still faces uncertainty from tighter financial conditions and geopolitical risks. Our view remains unchanged.
High yield bonds (non-investment grade)
🔴 US
We retain a negative view given rising vulnerability to slower growth and tighter financial conditions. The sector remains exposed should volatility increase further.
🔴 Europe
As weak growth dynamics and ongoing sensitivity to energy prices continue to create downside risks, we keep our negative view.
Commodities
🟡 Energy
We remain neutral as the market continues to balance geopolitical disruption against demand destruction and inventory drawdowns. While prices remain elevated, visibility on the medium-term path for oil remains limited.
🟢 Gold
Our positive view is supported by ongoing central bank demand and broader geopolitical uncertainty. However, the trade has become more volatile as markets react to shifting Middle East headlines.
🟡 Industrial metals
While long-term structural demand linked to AI infrastructure and electrification remains supportive, softer global growth and inventory trends continue to cap upside in the near term.
🟢 Agriculture
Supply risks, adverse weather conditions and rising fertiliser costs continue to support prices. Agricultural commodities remain one of the more attractive areas within commodities given how little they have participated in the broader commodity rally.
Currencies
🟡🔼 US $
We have upgraded the US dollar to neutral. While longer-term structural concerns remain, stronger relative US growth and higher rate differentials continue to support the currency tactically against developed market peers.
🟡 UK £
We remain unchanged, despite risks remaining tilted to the downside giving weaker domestic growth prospects and ongoing political uncertainty. Higher rates have provided some support, but the macro backdrop remains challenging.
🟡 EU €
While weaker growth momentum and energy sensitivity continue to weigh on the region, much of the recent macro deterioration now appears reflected in market pricing.
🟢🔼 CNH ¥
We have upgraded the renminbi to positive. Chinese policymakers appear increasingly comfortable with currency appreciation as export competitiveness and structural trade dynamics continue to improve.
🔴🔽 JPY ¥
We have downgraded the yen. Wide interest rate differentials continue to favour the US dollar, despite intervention risks and gradual BoJ policy normalisation.
🟡 Swiss franc ₣
Defensive characteristics remain supportive.
Source: Schroders, May 2026. The views for equities, government bonds and commodities are based on return relative to cash in local currency. The views for corporate bonds and high yield are based on credit spreads (i.e., duration-hedged). The views for currencies are relative to the US dollar, apart from the US dollar which is relative to a trade-weighted basket.
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