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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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July 1, 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 remain strong; we see a high likelihood of double-digit earnings growth over the next 12 months. Easing tensions around the Strait of Hormuz have improved our view of energy-sensitive markets. Positioning appears euophoric in some areas (mostly AI and semiconductors), but we remain positive on the beneficiaries of AI capital expenditures.

Equities

More Bearish
Neutral
More Bullish
Fixed Income
  • Markets continue to price in higher policy rates across most major economies, though expectations have moderated outside the United States since last month. Resilient US growth and challenging inflation dynamics complicate Federal Reserve (Fed) policy, in our view, supporting a bearish outlook.

Fixed Income

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

Cash

More Bearish
Neutral
More Bullish

Equities

United States
  • Strong corporate earnings and resilient economic growth continue to support US equities. As AI-driven investment broadens beyond technology, we favor diversified exposure across sectors and high-quality companies while remaining mindful of elevated valuations.

United States

More Bearish
Neutral
More Bullish
International Developed
  • Europe ex UK: Growth indicators remain weak, pressured by rising input costs and structural challenges in Germany, including high energy costs, labor shortages and regulatory burdens. While easing energy price pressures could provide some relief, weak domestic demand leads us to remain cautious on European equities.
  • Japan: Optimism has strengthened as the risk of prolonged oil disruption has eased. Earnings estimates have rebounded due to improving confidence in the economy while trailing earnings remain strong. Medium-term structural drivers, including corporate reform and targeted fiscal stimulus, remain in place and offer further support to equity markets.

International Developed

More Bearish
Neutral
More Bullish
Emerging Markets
  • Emerging markets ex China: Strong corporate fundamentals and continued AI-driven investment support a constructive outlook. Rising hyperscaler spending continues to benefit Asian technology and hardware companies, while easing energy supply concerns have helped reduce inflationary pressures and input costs.
  • China: China’s economy remains K-shaped, with subdued domestic demand offset by strong export performance, reducing the urgency for stimulus. For equities, the outlook hinges on domestic conditions, in our view, with challenges in the property sector and ongoing deflationary pressures weighing on sentiment. While new e-commerce regulations may help stabilize valuations at the margin, the broader backdrop of limited stimulus and uneven growth keeps us neutral.

Emerging Markets

More Bearish
Neutral
More Bullish

Fixed Income

US Treasuries
  • Markets have increased their expectations for Fed rate hikes over the past month as resilient growth and persistent inflation reduce the scope for policy easing. Continued fiscal deficits and a less transparent policy environment may also keep upward pressure on Treasury yields.

US Treasuries

More Bearish
Neutral
More Bullish
US Investment Grade
  • Increased bond issuance to finance AI-related capital spending been met with insatiable demand. Resilient corporate fundamentals provide support, but tight spreads leave limited room for additional price appreciation, in our view.

US Investment Grade

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Neutral
More Bullish
US High Yield
  • Elevated yields continue to attract income-oriented investors, while healthy corporate fundamentals have helped keep default rates contained. However, tight credit spreads limit the potential for further price appreciation, and we continue to see more attractive return opportunities in equities.

US High Yield

More Bearish
Neutral
More Bullish
International Developed
  • While the European Central Bank is expected to maintain a restrictive policy stance, weaker growth and easing energy price pressures should support lower bond yields over the medium term, in our view.

International Developed

More Bearish
Neutral
More Bullish
Emerging Markets
  • Local-currency debt continues to offer a compelling long-term opportunity, as fiscal and monetary policy stability, together with improving corporate governance, should support foreign capital inflows. However, a stronger US dollar and relatively more attractive earnings prospects for emerging market equities support a neutral view.

Emerging Markets

More Bearish
Neutral
More Bullish

US equity and fixed income factors

Market Capitalization

Small
Large
Market Capitalization
  • Equities: Market leadership has broadened to include small-cap equities, supported by resilient economic growth. However, we continue to favor diversified large-cap exposure, as stronger fundamentals and greater resilience to higher interest rates and policy uncertainty support a more durable earnings outlook.

Style

Value
Growth
Style
  • Equities: As AI investment expands across industries, the distinction between growth and value is becoming less clear. Strong corporate earnings continue to support growth equities. At the same time, broader market participation reinforces the case for maintaining diversified exposure across high-quality companies.

Duration

Short
Intermediate
Long
Duration
  • Fixed Income: Resilient growth, persistent inflation and a less-predictable policy environment reinforce our preference for shorter-duration bonds, as yields are likely to remain elevated.

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 in opportunistic 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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Capital Market Expectation 2026: Can AI realize rich valuations?

The Franklin Templeton Investment Solutions team’s capital market expectations is designed to provide annualized return expectations over a longer-term horizon, typically viewed as 10 years.

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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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