A new regional war in the Middle East resulting in a global oil price shock was just one of the surprises that 2026 has delivered so far. But in many areas, the projections and themes that Neuberger’s investment leaders outlined in their Solving for 2026 annual outlook, published in November 2025, have held up remarkably well. Here, we pause to take stock and keep score, with a look ahead at how to position for the coming months.
1. Policy Crosscurrents: Expect Divergence in Monetary and Fiscal Approaches — ★★★★★
What We Said: Policymaking faced a complex backdrop: AI productivity gains supported growth even as unemployment edged up. For the Federal Reserve and other data-dependent central banks, the pace and extent of easing will be in question as the year plays out.
What We've Seen: The Middle East conflict reshaped the macro landscape, making an already complex monetary and fiscal picture significantly more challenging. The resulting spike in energy prices induced a reacceleration of headline inflation across developed economies. That forced central banks into a difficult bind; with growth broadly softening and prices rising simultaneously, neither easing nor tightening offered a clean answer. The Federal Reserve's ability to address its dual mandate proved as complicated as we expected: AI-driven productivity supported solid economic growth, but energy-driven inflation made rate cuts difficult to justify, with the Fed on hold so far this year. Energy-importing economies—the euro area, UK and Japan—have been hit harder, exacerbating stagflation trade-offs. This has forced a number of central banks to pause rate cuts or even hike rates, widening policy divergence between regions. On the fiscal side, the global bias toward spending prevailed as anticipated: defense and energy-related expenditure added further stimulus in Europe and Japan, while the U.S. continued to run large structural deficits. With growth and inflation still sending mixed signals, policy paths diverging and fiscal space shrinking, there are elevated risks of policy errors among central banks heading into the second half.
2. AI Is in the Driver's Seat — ★★★★☆
What We Said: AI investment would drive capex, inflation, labor markets and asset prices, with policymakers responding reactively as countries competed for dominance. We saw a broadening investment set, AI opportunities beyond the U.S. and China, and warned that areas of frothiness argued for diversification.
What We've Seen: AI has continued to dominate the macro and market narrative, with its benefits materializing faster and more emphatically than many expected. The multi-year infrastructure cycle is well underway: global AI-related capex among hyperscalers is running at roughly $750 billion annualized, according to our estimates. At the same time, supply-chain pressures are tangible: power, components and specialized equipment have become binding constraints, with inflationary implications only beginning to feed through. The U.S. has extended its early lead, with company- and sector-level productivity gains increasingly visible, though economy-wide disruption remains more directional than definitive. China is closing ground quickly, backed by state-directed investment and rapid deployment, while the potential for AI leadership is beginning to extend into select emerging markets. Beyond the hyperscalers, the capex cycle is broadening into second-derivative industries and non-tech sectors, suggesting the most enduring impact may yet lie ahead.
3. The Worst Is Over for Long Rates — ★★☆☆☆
What We Said: Current yields appeared to reflect known risks around fiscal overreach and debt sustainability, suggesting the worst might be over for long-term interest rates. In credit, we expected heightened idiosyncratic risk to persist as the cycle matured and artificial intelligence caused further disruption. We suggested considering opportunities further out on the curve, pairing shorter and longer duration, and taking selective credit exposure.
What We've Seen: Long rates have risen moderately in the wake of the Middle East conflict, with yields on 10-year and 30-year Treasuries up about 30 and 15 basis points, respectively, year-to-date through end May, according to official data. These longer-end yield increases are more moderate than the spikes seen in the shorter end of the curve (for example, the 2-year increased about 50 bps through May as the market became more hawkish on policy rates). Nonetheless, fiscal concerns remain in focus, while central banks appear more cautious about monetary easing in light of inflationary pressures. Resolution of current Middle East tensions would likely deliver a return to previously balanced risk dynamics, meaningfully benefiting shorter bonds at these levels but long bonds as well. In credit, idiosyncratic risk has increased around AI, requiring continued attention to security selection.
4. A Double-Edged Sword for Equities — ★★★★☆
What We Said: While we expected the accelerating AI rollout to enhance margins and support broader earnings growth, we highlighted signs of froth and meaningfully stretched valuations. Rather than concentrating exposure on a narrow set of AI enablers, we stressed keeping an eye on AI-adjacent targets, including companies and industries rapidly adopting AI or supporting its buildout.
What We've Seen: The AI sword indeed cut both ways, producing both distinct winners (builders of AI infrastructure) and losers (software players under potentially existential threat). The combined impacts of the AI rollout and recent conflict in the Middle East have led to extreme return dispersion at the sector- and individual-stock levels. As expected, more companies have reported positive earnings revisions, due in part to AI-driven efficiency gains; what we didn’t see coming was the stunning rally among a narrow set of hyperscalers, chipmakers and hardware manufacturers, further ratcheting their concentration within public equity benchmarks. We believe Big Tech’s recent surge—along with SpaceX’s record-shattering public offering, and listings from Anthropic and OpenAI to come—is pushing passive investors into “growthier” (and potentially riskier) territory. In this environment, we believe skilled active managers may be able to capitalize on the widening spread between the best- and worst-performing stocks.
5. Seismic Shifts for Private Markets — ★★★☆☆
What We Said: Although private equity dealmaking was picking up, we thought it would take several years for sponsors to work through their backlogs, creating further opportunities for liquidity providers across secondaries, equity co-investments and custom hybrid capital solutions. On the private credit side, we expected direct lenders to hold their own against broadly syndicated loans arranged by traditional banks, though we anticipated widening dispersion of returns as the overall market grew and competition intensified.
What We've Seen: As expected, substantial private equity backlogs sustained thirst for various liquidity solutions. At the same time, dealmaking and distributions continued to recover, and demand rose across traditional drawdown funds and a variety of more accessible, evergreen private equity strategies. We saw a similar trend in the expanding and increasingly heterogeneous private credit market, which now includes an array of strategies with different risk, return and borrower profiles. (For more details on those important nuances, see Private Markets Outlook 1H 2026: Balancing Opportunity and Complexity.) We did not fully anticipate the pace at which advancements in agentic AI would disrupt pockets of the software sector, including spiking redemptions at several retail-oriented evergreen private credit funds. (Gloomy headlines notwithstanding, overall net fund flows into direct-lending vehicles have remained largely positive.) As both realms of the private market continue to evolve, we believe manager selection remains more crucial than ever.
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