T. Rowe Price forecasts a 2026 driven by AI growth and policy support amid inflation concerns

T. Rowe Price’s 2026 Outlook: AI Boom and Fiscal Stimulus Set to Shape Global Markets Amid Inflation and Valuation Concerns

At its 43rd annual global market outlook briefing in November 2025, T. Rowe Price presented a cautiously optimistic forecast for the 2026 financial markets, emphasizing the dynamic influence of artificial intelligence (AI), supportive fiscal and monetary policies, and a shifting global economic landscape. The session featured key insights from the firm’s top strategists, including Tim Murray, Josh Nelson, Ken Orchard, Sébastien Page, and Glenn August, against a backdrop of persistent inflation and high market valuations.

Tim Murray, the firm’s Capital Markets Strategist, described a bifurcated U.S. economy, led by a booming AI sector while interest rate-sensitive industries, including housing and manufacturing, remain subdued. Despite the Federal Reserve’s initial rate cuts, the lagging housing market and labor weakness pose risks, with sticky inflation complicating the outlook. Murray highlighted that while tariffs have not significantly dented overall U.S. growth, they contribute to economic fragmentation. The potential injection of fiscal and monetary stimulus in 2026 might provide much-needed lift to weaker sectors, broadening economic expansion.

Josh Nelson, Head of Global Equity, noted the maturation of the AI wave shifting focus from software and digital applications to the physical infrastructure underpinning AI’s future, energy, cooling, networking, and semiconductors. Companies like NVIDIA, Microsoft, Alphabet, and Meta are positioned to lead, though competition is intensifying, leading to greater market dispersion. He also pointed to the “One Big Beautiful Bill” enacted in July 2025, which allocates an estimated $200 to $300 billion in new U.S. fiscal stimulus for 2026, expected to bolster economic activity and corporate earnings alongside anticipated Fed rate reductions.

Globally, Nelson sees Europe entering a quiet expansion phase, aided by Germany’s suspension of its debt brake to allow increased fiscal spending on defence and infrastructure. Japan presents attractive investment opportunities with robust cash flow and improved corporate governance. Meanwhile, regulation in China has softened, encouraging private enterprise and creating tactical opportunities. Outside China, emerging markets benefit from attractive valuations, contributing to a broadly positive outlook.

On the fixed-income front, Ken Orchard, Head of International Fixed Income, stressed that issuer fundamentals remain solid with credit defaults expected to stay below long-term averages despite the “later cycle” credit behaviours signaling the need for heightened credit selectivity. Fiscal expansion in the U.S., UK, and parts of the eurozone is pushing government bond supply and yields higher, necessitating a cautious approach. Orchard recommends low duration bonds, a tilt towards public credit over government bonds, an underweight position in U.S. bonds relative to global debt, inflation-linked bonds, and a quality-focused overweight in emerging market debt.

Sébastien Page, the firm’s Chief Investment Officer, highlighted diversification benefits outside the U.S., pointing to more reasonable valuations and potential policy catalysts in international equities, particularly in Germany and broader Europe where monetary policy is easing. Given inflation risks amid tightening labour markets and tariff-related supply chain issues, Page advised hedging strategies through inflation-sensitive assets such as real assets equities and short-term Treasury Inflation-Protected Securities (TIPS). Despite positive economic momentum expected from AI investment and policy support, T. Rowe Price’s asset allocation team remains neutral on stocks versus bonds because of elevated valuations.

Glenn August, CEO of Oak Hill Advisors, the credit-focused alternative asset manager affiliated with T. Rowe Price, warned of the inherent risks in leveraged finance markets, referring to problematic credits colloquially as “cockroaches.” He emphasised the importance of disciplined credit selection, active management, and distressed capabilities to mitigate risks in a market of approximately $5 trillion, where recovery rates for distressed assets may be lower than before.

This nuanced outlook aligns with broader global economic trends observed through 2025. Earlier in the year, the International Monetary Fund raised growth forecasts for the U.S. for 2025 on stronger-than-expected activity but downgraded expectations for key European economies like Germany and France due to various headwinds. Both the IMF and the Organisation for Economic Co-operation and Development (OECD) highlighted risks posed by rising protectionism, tariffs, and subsidies, warning these could exacerbate inflationary pressures, disrupt supply chains, and unsettle financial markets.

T. Rowe Price itself remains robust, having expanded its product offerings with new international equity ETFs launched in mid-2025 to capture diverse global growth opportunities. Financial analysts, including Morgan Stanley, have recently upgraded their earnings estimates for the firm, reflecting confidence in its strategic positioning and expense management. Moreover, a notable partnership with Goldman Sachs aims to enhance investor access to private market retirement products, further signalling the firm’s commitment to innovation and long-term growth.

In summary, while inflation and valuation challenges persist, T. Rowe Price’s 2026 outlook is shaped by optimism that the ongoing AI revolution, together with coordinated fiscal and monetary stimulus, especially in the U.S. and Europe, will drive market opportunities worldwide. Investors are advised to prepare for a differentiated environment requiring selective credit approaches and diversification beyond U.S. equities, particularly towards international and inflation-sensitive assets, as global economic expansion broadens in the year ahead.