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2026 Investment Outlook

Third Quarter

Why Flexibility Matters as Market Leadership Shifts

Market leadership can change quickly, particularly in periods marked by rapid technological innovation, shifting policy expectations and heightened geopolitical uncertainty. Behavioral finance research, including Dalbar’s latest investor behavior study, has consistently shown that investor outcomes can fall short of market returns when recent performance drives buying and selling decisions.

2026 Investment Outlook at a Glance

This third-quarter Investment Outlook examines global market shifts, long-term investment themes and diversification principles amid economic and geopolitical change.

While often discussed in the context of individual investors, the study’s implications are also relevant for institutional portfolios. In fast-moving markets, investors can be tempted to lean into areas after much of the opportunity has already played out, or to step away just as conditions begin to improve.

We believe strong governance, disciplined rebalancing, and diversified exposure across a broader set of return drivers can help portfolios participate in market shifts as they occur rather than react afterward.

Concentration Is High, but Market Leadership Is Broadening

We believe the case for diversification is particularly compelling now. The challenge for investors isn’t a shortage of opportunities, but rather their concentration and rapid evolution.

The rapid advance in artificial intelligence (AI) has continued to support healthy earnings growth and long-term return potential for technology, communication services and other large-cap companies tied to AI infrastructure and adoption. At the same time, participation in this investment theme has led to increasingly concentrated portfolios, with many investors allocating more heavily to a relatively narrow group of companies and sectors.

Rising geopolitical tensions are also affecting inflation expectations and the path of interest rates, making the fixed-income environment more volatile and less predictable.

Meanwhile, several areas that lagged in recent years have shown renewed strength. As of May 31, FactSet data indicated that U.S. small-caps and value stocks have outperformed their large-cap and growth counterparts. In addition, emerging markets (EM) have delivered stronger returns relative to both U.S. and non-U.S. developed markets despite ongoing uncertainty.

These shifts serve as a reminder that market leadership can expand rapidly, often before investors have had a chance to fully adjust their positions.

In this environment, diversification isn’t just about managing risk. For us, it’s also about maintaining disciplined exposure to a broader set of potential return drivers, so portfolios are better positioned to participate in a range of possible market outcomes.

What Key Themes Are Shaping Markets in Q3?

In the sections that follow, our chief investment officers highlight where they see the most relevant opportunities and risks in their respective markets.

  • U.S. stocks continue to face volatility from geopolitical risk, inflation pressures and shifting rate expectations. At the same time, we believe the long-term opportunity from AI-driven innovation remains significant.

  • Aside from AI, global equities are supported by a wider range of regional growth factors, such as higher European defense budgets, Asian advancements in key technologies and increasing demand for energy independence.

  • In fixed income, we see value in active management as steady growth remains our base case, but upside and downside risks have widened. With markets not fully pricing either scenario, we’re emphasizing balanced risk exposure while seeking security- and sector-specific opportunities, including high-quality investment-grade corporates, select EM debt and municipal bonds.

In our view, the breadth of opportunity remains compelling. We believe investors who remain diversified, disciplined and focused on the long term will be more effectively positioned to adapt as market dynamics evolve and leadership broadens.

We are grateful for the trust you place in us.

Victor Zhang, Chief Investment Officer
Victor Zhang

Chief Investment Officer

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.