The war in Iran has injected significant uncertainty into the outlook and widened the range of potential outcomes for the economy and financial markets. While risks have intensified, our base case scenario still sees the economy continuing to grow amid a variety of existing tailwinds, allowing stocks to outperform bonds, particularly in non-U.S. regions where valuations are relatively appealing.

Economy

• The war in Iran and concerns around artificial intelligence (AI) are unlikely to be killer blows: oil prices should drop back in the coming months, and there are positive AI scenarios to weigh against the negative ones.

• Economic outlook remains reasonably constructive given tailwinds including support from last year’s interest-rate cuts, fiscal support, and AI-related capital expenditures and productivity gains.

• In turn, our economic-growth forecasts for 2026 are mostly above consensus.

• Progress on inflation should resume and energy-linked inflation should unwind once energy begins flowing normally again from the Middle East.

RBC GAM forecast for developed markets

Note: As of 03/06/2026. Source: RBC GAM

Fixed Income

• Yields climbed toward the upper end of a 3.94%-to-4.30% range in early March as investors worried that the war in Iran could accelerate inflation.

• At current levels, yields are above our modelled estimates of equilibrium and indicate only modest valuation risk.

• We forecast low-single digit returns with yields little changed, as the energy-price shock and ballooning government deficits counterbalance our modelled assumptions for declining inflation and lower real (after-inflation) yields.

• The reward for accepting the added risk of corporate bonds vis-à-vis government bonds is historically small but all-in yield remains appealing versus the ultra-low levels immediately post-pandemic.

U.S. 10-year T-bond yield

Equilibrium range

Note: As of February 28, 2026. Source: RBC GAM

Equity Markets

• Equity-market gains backed by robust economic growth and a surge in AI-related spending have pushed our global composite of stock valuations to its highest level since early 2022.

• Robust earnings growth is expected almost everywhere over the next two years, but indexes outside the U.S. large-cap space may offer access to that earnings growth at a cheaper price.

• Investors have shifted their preference away from U.S. large-cap stocks to other regions, but it remains to be seen whether the leadership in non-U.S. stocks can be sustained.

• AI was the dominant theme as investors piled into companies that have benefited from the immense capital spending and shunned ones deemed vulnerable to AI disruption.

Global stock-market composite

Equity-market indices relative to equilibrium

Note: As of February 28, 2026. Source: RBC GAM

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