2026 Mid-Year Capital Markets Sentiment

Executive Summary

When we published Syntrinsic’s 2026 Capital Markets Forecast in January, the markets anticipated that the Federal Reserve would cut interest rates this year and that Artificial Intelligence would remain synonymous with spectacular equity growth. The war with Iran that started February 28 has been and remains a huge question mark for geopolitical stability and energy prices. Rather than an extension of 2025 market conditions, the first quarter of 2026 ended with US equity markets down, Treasury yields up, and inflation higher due to a spike in energy prices.

The second quarter provided additional challenges but a more resilient market. Equities rose steadily, globally, and more broadly than in recent years. Chairmanship of the US Federal Reserve changed hands smoothly and the new Chair has demonstrated political independence.

As we review the economy at mid-year, we have no changes in sentiment, but two portfolio adjustments that we are recommending for many clients.¹ We also have one change we had thought we would make that is on hold.

1. For the past decade, we have maintained an overweight to US equity versus its weight in the global equity market. Having moved to Neutral sentiment across regions, our best thinking points to a market weight allocation to US, non-US Developed, and emerging market equities.
2. Since 2018, our allocations to private debt have largely centered on direct lending. Going forward, we are more broadly weaving asset-backed lending (i.e., specialty finance) and opportunistic strategies into many portfolios.

And fittingly, given this year of unexpected events, we are not lengthening the duration of fixed income portfolios as we would have in a falling interest rate environment. Maybe, hopefully, some day.

1. Portfolio recommendations herein are general in nature and do not reflect the specific risk characteristics or limitations imposed by any clients. As a result, these recommendations may not be suitable for all clients. ↩︎

Authors