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Timely Investment Positioning from FTIS

David Bel, Senior Client Portfolio Manager, outlines Franklin Templeton Investment Solutions’ latest market views.

Timely Investment Positioning

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August 3, 2026: Views reflect a 12-month time horizon for dynamic positioning. Arrows, if included, denote a month-over-month change in a given view.

More Bearish
Neutral
More Bullish

Asset Class

Equities
  • Corporate fundamentals are strong, and we expect double-digit earnings growth over the next 12 months, which supports current valuations rather than requiring them to climb. Sentiment has cooled toward neutral rather than turnedeuphoric, so the market is not leaning hard on a perfect outcome, as Middle East tensions remain unsettled.

Equities

More Bearish
Neutral
More Bullish
Fixed Income
  • Middle East tension pushed markets to price interest-rate hikes across most major regions, but that pricing is now diverging. The European Central Bank (ECB) has already hiked, the odds that the Reserve Bank of Australia hikes have roughly halved, and the Bank of Japan faces pressure to tighten further. Resilient growth and above-target inflation complicate policy, and the conflict remains in flux.

Fixed Income

More Bearish
Neutral
More Bullish
Cash
  • We believe cash continues to offer attractive risk-free returns, though our outlook for equities supports a neutral view.

Cash

More Bearish
Neutral
More Bullish

Equities

United States
  • Profits and growth are both resilient, and AI investment has spread beyond technology into power, cooling and construction, broadening the set of industries earning from the buildout. We favor diversified exposure over style bets.

United States

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Neutral
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International Developed
  • Europe ex UK: Growth remains weak, held back by Germany’s structural problems and higher energy costs since the Middle East conflict. The Deutsche Bundesbank notes that public spending is now the main factor keeping the economy from contracting. Furthermore, Chinese competition has spread from consumer goods into cars, batteries, chemicals and steel, a lasting drag.
  • Japan: We are anticipating double-digit earnings growth, driven by margins and pricing power rather than one sector, with government spending adding support. Rising borrowing costs are the risk to that spending—10-year yields sit near 30-year highs around 2.8%. Furthermore, Japan imports nearly all its oil, leaving it exposed while the Strait of Hormuz stays disrupted and set to gain if it reopens.

International Developed

More Bearish
Neutral
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Emerging Markets
  • Emerging markets ex China: Corporate fundamentals are strong and earnings expectations keep rising on steady margin expansion, which is the heart of our optimism. Valuations have climbed, but profits have kept pace, so investorsare paying more for genuinely better earnings.
  • China: China’s economy remains K-shaped, with subdued domestic demand offset by strong exports, reducing the urgency for stimulus. Earnings expectations look challenged against the wider emerging-market group. New e-commerce rules limit the discount wars, which protects margins for the large internet companies that dominate the market but caps their revenue growth.

Emerging Markets

More Bearish
Neutral
More Bullish

Fixed Income

US Treasuries
  • Yields have already risen close to our estimate of fair value, so the easy repricing is behind us, in our view. Core inflation is still above target and government borrowing needs are heavy, which could limit any scope for yields to fall. Amore cautious Federal Reserve may cap further increases.

US Treasuries

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Neutral
More Bullish
US Investment Grade
  • Resilient corporate fundamentals support the sector, but the narrow yield over government bonds leaves little room for prices to rise. Heavy issuance to fund AI data centers adds supply, though demand has absorbed it so far.

US Investment Grade

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Neutral
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US High Yield
  • High all-in yields reflect high government rates rather than generous compensation for credit risk, and defaults remain contained. Spreads are tight, so investors are paid little to take that risk and would absorb most of the damage if fundamentals slow. With inflation above target, rates may stay high, which keeps refinancing costs elevated for borrowers and offers little price offset.

US High Yield

More Bearish
Neutral
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International Developed
  • The ECB has already raised rates once and may do so again, with euro-area gas prices up sharply over the past month keeping inflation pressure alive. We expect weak growth to limit how far tightening goes, which should support lower yields over the medium term, though energy risk remains unresolved.

International Developed

More Bearish
Neutral
More Bullish
Emerging Markets
  • We believe local-currency debt continues to offer a compelling long-term opportunity, supported by steadier fiscal and monetary policy that should draw foreign capital. The US dollar has stayed range-bound, which has kept the currency drag mild—but that could reverse. Attractive emerging-market equity earnings support a neutral view.

Emerging Markets

More Bearish
Neutral
More Bullish

US equity and fixed income factors

Market Capitalization

Small
Large
Market Capitalization
  • Equities: Earnings growth has broadened beyond the largest technology names, which supports smaller companies. We still favor diversified large-cap exposure, because those companies carry less floating-rate debt and refinance less often, leaving them better placed if rates stay high.

Style

Value
Growth
Style
  • Equities: AI spending has expanded into value companies. With this dominant theme driving both styles, we prefer diversified high-quality exposure to a tilt either way.

Duration

Short
Intermediate
Long
Duration
  • Fixed Income: Core inflation above target and heavy government borrowing keep longer yields unsettled, while short-dated bonds pay a competitive rate. We prefer shorter maturities—not because we expect yields to rise, but because investors are paid little to take that risk.

Periodic insights on alternative asset classes

Private Equity

Conditions have stabilized, supported by improving buyer-seller valuation alignment and stronger deal activity, though exits and fundraising remain uneven. We continue to favor lower- and middle-market buyouts and still see secondaries—especially general partner-led/single-asset continuation vehicles—as attractive despite increasing competition.

Private Credit

We remain selectively constructive on private credit while staying cautious on core corporate direct lending. Although all-in yields remain attractive, competition and a compressed illiquidity premium warrant discipline. We see better opportunities inopportunistic lending and special situations, where fundraising and redemption pressures may continue to improve spreads and future deployment opportunities.

Real Assets

Private Real Estate: Our outlook remains balanced as higher-for-longer interest rates continue to pressure valuations, while sector and asset-level dispersion creates opportunities for selective managers. We favor value-add 'buy versus build' opportunities and inflation-resilient sectors. Real estate credit remains attractive given elevated yields and a sizable refinancing pipeline, though pricing discipline remains essential.

Commodities: We remain neutral on commodities overall. Easing energy supply concerns have reduced support for oil prices, while a stronger US dollar and higher yields remain headwinds. At the same time, structural demand from AI-related infrastructure investment continues to support select industrial metals.

Hedge Strategies

We have become more constructive on long/short equity managers; we believe the environment supports security selection. We remain neutral but modestly more constructive on event-driven strategies as strong corporate activity is expanding the opportunity set despite elevated valuations and geopolitical risks. The global macro environment remains supportive, in our view, with policy shifts uncertainty creating opportunities. Commodity managers continue to face a compelling but complex opportunity set; we see opportunities for directional and relative value strategies.

Additional Perspectives from Franklin Templeton Investment Solutions

TIP Sheet

Access the latest Timely Investment Positioning (TIP) sheet for more details on FTIS' outlook across asset classes.

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Investment perspectives reflect the analysis and opinions of the authors as of the dates on the respective content and may change without notice. It may differ from the opinions of other portfolio managers, investment teams or platforms at Franklin Templeton Investments. It is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

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