Two major forces are currently dominating the macroeconomic landscape: the ongoing global energy shock versus the rapid advancement and great promise of artificial intelligence (AI). To the extent that the former should prove temporary but the latter should endure, we expect stocks to outperform bonds but recognize that considerable optimism is priced into the equity outlook, particularly in regions with higher exposure to AI.

Economy

• The economic backdrop remains surprisingly resilient despite the energy shock, with economic data in both the U.S. and the G10 better than it was a year ago.

• Important tailwinds related to AI spending, fiscal stimulus and increased productivity are all contributing to an improving outlook for corporate profits.

• We anticipate a headwind to the economy from the energy shock but, in our view, any dip in growth should be fairly mild and partially reversed later.

• Our GDP forecasts are still primarily above consensus, and we deem the risk of recession to be low.

RBC GAM GDP forecast for developed markets

Note: As of June 01, 2026. Source: RBC GAM

Fixed income

• Central banks are now considering rate hikes due to the combination of still-resilient economic growth paired with higher energy prices and broadening of inflation pressures.

• The return potential for sovereign bonds has improved following the recent rise in yields.

• At these higher yields, our model suggests U.S. 10-year bonds offer improved return potential with minimal valuation risk.

• We forecast low-to-mid single-digit returns for government bonds, with the potential to earn higher returns in corporate bonds, though the added compensation for taking credit risk is historically small.

U.S. 10-year T-bond yield

Equilibrium range

Note: As of May 29, 2026. Source: RBC GAM

Equity markets

• A surge in AI-related spending fuelled an earnings boom that propelled stocks to new highs.

• The consensus S&P 500 earnings estimate for 2026 has been revised higher by a remarkable 20% over the past year, with analysts now looking for strong earnings growth to persist over the next several years.

• Following the strong gains of the past quarter, stocks are pricing in an optimistic scenario, assuming that the supportive macro backdrop and rapidly growing profits persist.

• We expect many of the positive tailwinds to last and recognize that earnings can continue to exceed expectations. But if the outlook were to worsen, stocks would be vulnerable from their lofty starting point.

Global stock market composite

Equity market indexes relative to equilibrium

Note: As of May 29, 2026. Source: RBC GAM

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This material is provided by RBC Global Asset Management (RBC GAM) for informational purposes only and may not be reproduced, distributed or published without the written consent of RBC GAM or its affiliated entities listed herein. This material does not constitute an offer or a solicitation to buy or to sell any security, product or service in any jurisdiction; nor is it intended to provide investment, financial, legal, accounting, tax, or other advice and such information should not be relied or acted upon for providing such advice. This material is not available for distribution to investors in jurisdictions where such distribution would be prohibited.

RBC GAM is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management Inc. (RBC GAM Inc.), RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management (UK) Limited (RBC GAM-UK), and RBC Global Asset Management (Asia) Limited (RBC GAM-Asia), which are separate, but affiliated subsidiaries of RBC.

In Canada, this material is provided by RBC GAM Inc. (including PH&N Institutional), which is regulated by each provincial and territorial securities commission. In the United States (US), this material is provided by RBC GAM-US, a federally registered investment adviser. In the United Kingdom (UK) and Australia this material is provided by RBC GAM-UK, which is authorised and regulated by the UK Financial Conduct Authority. In the European Economic Area (EEA), this material is provided by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, France, Sweden, Italy, Spain and Netherlands the BBFM S.A. is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In Spain, BlueBay Funds Management S.A is registered with the CNMV under No. 607. In Switzerland, this material is provided by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. In Japan, this material is provided by BlueBay Asset Management International Limited, which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, this material is provided by RBC GAM-Asia, which is licensed by the Securities and Futures Commission (SFC) in Hong Kong.

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This material has not been reviewed by, and is not registered with any securities or other regulatory authority, and may, where appropriate and permissible, be distributed by the above-listed entities in their respective jurisdictions.

Any investment and economic outlook information contained in this material has been compiled by RBC GAM from various sources. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions in such information.

Opinions contained herein reflect the judgment and thought leadership of RBC GAM and are subject to change at any time. Such opinions are for informational purposes only and are not intended to be investment or financial advice and should not be relied or acted upon for providing such advice. RBC GAM does not undertake any obligation or responsibility to update such opinions.

RBC GAM reserves the right at any time and without notice to change, amend or cease publication of this information.

Past performance is not indicative of future results. It is not possible to invest directly in an index.

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