Wall Street Strategists Wrestle With War’s Toll on 2026 Outlook

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That’s pushed off his timetable for when the Fed will dial its rate back to the neutral level — of around 3% — from its current range of 3.5% to 3.75%. He said year-on-year inflation could hit 4% this summer. 

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“Because a lot of what’s pushing up inflation this year is temporary, it actually leads to less inflation next year,” he added. “So I think inflation could dip below 2% next year, and that should enable the Fed to perhaps give us one to two more rate cuts next year.”

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Goldman Sachs Asset Management

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Alexandra Wilson-Elizondo, the firm’s global co-head and co-chief investment officer of multi-asset solutions, said the Fed is likely to remain “firmly on hold” until clear evidence emerges on the direction of growth and inflation, though she still expects a cut before year end. 

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But central banks that have a sole mandate to focus on price stability, like the European Central Bank, will likely be forced to hike rates. “We could see that coming to fruition in Europe,” she said.

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Even so, the reset expectations in the US have pushed up short-term bond yields, with the rate on two-year Treasuries around 3.8%, up nearly half a percentage point since the war began. “We think the market has created opportunities to start dipping our toes back into fixed income, particularly in the US,” she said. “Yields are a strong indicator of forward returns over the medium to long term.”

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On corporate credit, Wilson-Elizondo sees the potential for more risk to be priced in as businesses feel the impacts of shifts in the economy. “The credit cycle appears to be turning,” she said.

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BlackRock Investment Institute

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The team adopted a more neutral stance toward risk assets last month, a shift from the overweight allocation coming into the year, when it was focused on the positive impacts from AI.

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“We’re going to need to see how things shake out,” said Jean Boivin, head of BII. “It’s a bit binary. We could go back to our pro-risk stance or we might conclude that the damage from the supply shock and the stagflation is going to be more of the story.”

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How AI will play out — which before the war was fueling sharp investor pullbacks from companies likely hit by the competitive threat — is also not clear cut. “We believe in AI and the build out is real but the build out requires very deep financing and leveraging,” he said. 

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The team has maintained its underweight position in long-term US Treasuries due to the inflation pressures and favors European bonds. He expects long-term rates to rise, with a key risk being an abrupt and significant shift in interest rates. “The inflation story was not as benign as the market and envisioned it earlier this year,” he said. “We’ve already seen disruptions that are probably enough to create pressure on inflation that will make it hard for the Fed to cut in 2026.”

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Allspring Global Investments

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Ann Miletti, the firm’s head of equity investments, entered the year predicting two Fed rate cuts but now thinks one could get pushed into 2027. “We see a bigger slowdown in growth,” she said. “The ramp up to inflation is stronger than we expected.” 

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In US equities, she still expects the market’s focus to broaden and has been surprised by the resilience of small caps. “Investors are not completely panicked about rates going higher,” she said. 

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She sees the recent jump in yields as an opportunity to boost exposure in the US and Europe. “Most geopolitical events, in the moment, seem very urgent and creates a lot of anxiety for investors. But in the longer term, they look like little blips in the past.”

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Pictet Asset Management

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The European firm had been close to reassessing its positioning, but Tuesday’s ceasefire shifted the calculus. For now, its projections for this year remain unchanged, according to Luca Paolini, the firm’s chief strategist: The S&P 500 will finish at 7,250 — up more than 6% from Friday’s close; European equities will rise some 10%; and the 10-year Treasury yield will fall below 4.25% from a little over 4.3% now.