Five Themes for Navigating Markets
Our investment leaders break down the macro environment and its implications for equities, fixed income, and private markets in 2026.
Macro
1. Policy Crosscurrents: Expect Divergence in Monetary and Fiscal Approaches
As we enter 2026, the Federal Reserve’s dual mandate of maintaining maximum employment and price stability will likely be complicated by an unusual combination: productivity gains are driving growth while job creation remains subdued.
Rapid AI investment and adoption contribute to both dynamics, adding upside risks to growth via productivity, and downside risks to labor as unemployment grinds higher on increasing automation. For the Fed and other data-dependent central banks observing similar trends, the pace and extent of easing will be in question as the year plays out, shaped by how the labor, growth and inflation picture evolves.
Heading into the new year, the macro setup looks supportive for the U.S. and parts of Asia, particularly China and Japan. Europe, by comparison, looks more challenging due to a tougher mix of macro, policy and political factors. Investors need to prepare for risk-on rallies, but also stay wary of the fallout should monetary and fiscal policies disappoint or lead to overheating. Overall, we expect the global fiscal bias towards spending to prevail, even as tariff uncertainties remain and deficits widen.
The Fiscal Bias Toward Spending Will Prevail Amid a Varying Growth/Labor Tradeoff
Actual and projected levels of government net borrowing/lending as a % of GDP
Source: Bloomberg, IMF, Macrobond and Neuberger, 2025.
Investment Implications
U.S.: Productivity improvements should drive higher earnings in aggregate, but policy surprises could deliver volatility spikes. In fixed income, we believe that stabilizing term premia can allow investors to capture selective opportunities at the longer end (10 years and beyond) of the curve.
Europe: Equities are likely to face pressure on falling earnings expectations and a more challenging macro/policy backdrop; European fixed income (Bunds, corporate credit) looks attractive ahead of additional monetary easing.
Asia: We expect Japan equities to continue benefitting from earnings strength, share buybacks, corporate governance reforms and attractive valuations.
The U.S. And China Are Leading the Global Rush of AI Capex
2024 investment in AI by country ($bn)
Source: Stanford University Artificial Intelligence Index Report 2025.
Investment Implications
Policy variation creates an opportunity set for investing in AI beyond the U.S. and China. Consider emerging markets broadly as well as opportunities in adjacentand critical industries.
AI is a prospective driver of volatility as it remakes the economic leaderboard. Diversification across asset classes plus a focus on quality could help mitigate shocks stemming from AI-related disruption at the macro or micro levels.
2. AI Is in the Driver’s Seat
As the race for AI leadership intensifies in 2026, the benefits should materialize faster and more emphatically. This will have profound implications for inflation, labor markets and asset prices. It will drive increasingly disparate macroeconomic and microeconomic outcomes, forcing more policy responses from governments.
Regionally, the U.S. and China are moving the quickest on AI development, driven by supportive regulation, huge private sector investment and rapid deployment. The U.S. seems to have an early lead, with company- and sector-level productivity gains beginning to come through.
AI is driving a multiyear infrastructure cycle: expect massive spending across data centers, power, energy and grid upgrades, as well as a set of second-derivative industries. But this rush of private capex by tech and AI hyperscalers will need to broaden and increase to drive further growth, and that can only occur if there is an improvement in business confidence.
Likely the most enduring impact of AI investment will be felt as companies in all the non-tech sectors embrace and incorporate this technology into their core business.
Fixed Income
3. The Worst Is Over for Long Rates
Fiscal overreach and debt sustainability have dominated the debate regarding sovereign fixed income valuations for years, but we believe that long-term yields already reflect known risks. In our view, the worst may be over for long interest rates.
In the U.S. and Europe, improving carry profiles in longer maturities on the back of lower policy rates should provide support to the long end of yield curves. In addition, governments may look to fight back against bond vigilantes by shortening their bond issuance and executing buybacks (shifting from quantitative tightening back to quantitative easing), among other measures. Finally, fiscal balances could improve and sovereign debt concerns could ease because of rising tariff revenues in the U.S., or, if the AI trend works as advertised, by generating higher productivity growth over time.
In credit, we think that current spreads are largely justified by fundamentals, but recognize that the nature of the economy is changing at a point when credit spreads are quite tight. As new winners and losers emerge across a host of industries, a new phase of the credit cycle may emerge where credits once seen as safe are put at risk. These disruptions could also support long-term government yields.
The Term Premium Has Stabilized and Is Near Its 20-Year Average
Basis points
Source: Bloomberg, October 2025. Estimated daily Adrian, Crump and Moench (ACM) term premium on U.S. Treasuries vs. its 20-year average.
Investment Implications
Emphasize security selection and quality in light of rising idiosyncratic risk.
Consider increasing exposure to longer duration bonds for potentially higher yield and return generation during periods of mispricing.
Equities
The Tech Sector Is Significantly More Vulnerable to Swings in the Broader Equity Market
The 5-year beta of the Nasdaq 100 Index relative to the broader equity market, implying that idiosyncratic risk has risen along with AI-related valuations.
Source:FactSet and Neuberger, 2025. Past performance is not an indicator, guarantee or projection of future performance.
Investment Implications
Target AI thematically, employing diversification across regions and sectors to optimize returns rather than concentrating exposure.
Seek Out companies that are seeing tangible results and/or accruing measurable benefits.
Consider AI-adjacent targets (e.g., power suppliers), focusing on companies or industries rapidly adopting AI or supporting its buildout, including financials, industrials and health care.
4. AI Is a Double-Edged Sword
In addition to the macro impacts, AI will remain a key driver for global equities in 2026. Market leadership to date has coalesced around the meteoric rise of Nvidia plus a handful of U.S. hyperscalers including Amazon, Google, Meta and Microsoft. But adoption has broadened rapidly in the three years since OpenAI released ChatGPT, and AI-driven productivity gains are already appearing across the S&P 500, boosting real revenue per worker. The accelerating AI rollout in more traditional sectors, from health care to financial services, will add efficiencies and enhance margins beyond mega-cap tech, supporting continued broadening of investment and earnings growth. AI will likely drive an extraordinary process of “creative destruction” for companies and industries, requiring selectivity in investment choices.
But the sword cuts two ways. Concerns are rising over signs of froth, including some headlinegrabbing deals and announcements of huge capex plans. Valuations in some instances appear meaningfully stretched.
Where are the potential tipping points? We will pay close attention to any indications of strained free cash flows at companies as they deploy massive amounts of capex to build new data centers and other AI-related infrastructure. Likewise, power supply constraints could slow the pace of those buildouts. Investors will need to mind both the catalysts and the froth, reemphasize bottom-up fundamental analysis and avoid seeking blanket exposure. Focus instead on companies with durable returns on their AI spending and implementation strategies.
Private Markets
5. Seismic Shifts Take Shape
We see a mix of challenges and fresh opportunities across private equity, private debt and hybrid solutions heading into 2026.
In terms of challenges, subdued distributions stemming from constrained M&A and IPO activity have led to longer asset holding periods and a tougher fundraising environment. Although dealmaking continues to pick up, it may take several years to work through the backlog of private equity portfolio companies looking for exits. On the bright side, this backdrop continues to create opportunities for various providers of liquidity to private equity sponsors and their limited partners. Secondaries, capital solutions and equity co-investment all have a potentially attractive, multiyear opportunities, in our view.
Meanwhile, several structural shifts are taking firmer shape, including deglobalization, a potentially less benign macroeconomic regime, and aggressive AI adoption, setting the stage for greater dispersion of returns throughout private markets. In this environment, we believe investment selection will be even more critical, and that managers with deep expertise and resources dedicated to creating value in their portfolio companies will prove most successful. Furthermore, given the long-term and flexible nature of private capital versus more traditional markets, we expect private markets to play a significant role in funding the massive buildout of AI-related infrastructure. Yet another, potentially more seismic shift: the rapid expansion of private markets across the high-net-worth and retail segments, spurred by new U.S. Department of Labor rules allowing defined contribution retirement plans to offer private-market investments.
On the private debt side, direct lenders continue to maintain significant share of the leveraged lending market versus broadly syndicated loans arranged by traditional banks. We believe private debt markets will continue to grow as direct lenders demonstrate their ability to offer faster execution, more flexible terms and greater reliability; however, as in private equity, we also expect a widening dispersion of returns as competition intensifies. Manager selection remains crucial.
Strong Growth in Secondaries Partially Driven by Lack of PE Exits
Secondary transaction volumes ($bn)
Source: Neuberger based on Jeffries data. As of June 30, 2025. Past performance is not an indicator, guarantee or projection of future performance.
Investment Implications
In Private Equity, provide liquidity to top‑tier sponsors via midlife co‑investments, GP‑led continuation funds and custom hybrid capital solutions.
In Private Debt, favor disciplined direct lenders in an increasingly crowded market.
Solving for 2026
Our investment leaders break down the macro environment and its implications for equities, fixed income, and private markets in 2026.
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