Demographic shifts, policy changes, AI-driven productivity gains, and the maturation of private markets are transforming the global economy. These forces are thus reshaping the opportunity set for investors with diverse potential for growth across sectors, regions and asset classes. The risk outlook is also evolving. Fiscal and monetary policy, AI, and the geopolitical landscape present a range of possible portfolio implications.

In a fast-changing investment backdrop, PGIM gathered a panel of experts to discuss our 2026 Best Ideas for capturing alpha and constructing more resilient portfolios. The following is a summary of the conversation.

• A macro tailwind for risk assets: Economic growth has outpaced what were relatively muted expectations, powered by spending by higher-income consumers and AI-related investments. This macro backdrop has contributed to a low level of defaults, strong real estate demand, and robust corporate earnings that have driven equity valuations higher. Investors should note some potential risks to the outlook. There is potential for a lag in inflationary pressure as companies pass through the cost of 2025 tariffs. Fiscal or monetary policy may prove to be too stimulative, adding a risk of overheating. Credit spreads have been tight across sectors of late, while near-term debt supply could increase leverage. In equities, lower and slower growth can be positive for secular growth companies, which can take advantage of structural shifts in their industry that are independent of the broader macro environment.
• Holistic credit opportunities: As public and private markets continue to converge, it will become increasingly crucial to take a holistic view of credit assets. Exposure to both public and private credit can open portfolios to more sectors, geographies and issuers, which can enhance diversification and allow investors to take advantage of asynchronous spread moves across the credit universe. From a bottom-up issuer perspective, a combination of public and private credits can give a single portfolio access to new and better diversified opportunities. For instance, private credit offers exposure to middle-market direct lending that features direct origination and an illiquidity premium. The rate outlook in 2026 hinges in part on the Federal Reserve and its next chair. The market has recently priced in one or two rate cuts this year, but there’s a chance that under a more dovish chair, the Fed eases more.
• The growth story in AI: AI’s buildout and adoption are moving at a faster pace than any technological revolution that came before. Companies involved in building AI infrastructure are already reaping benefits, turning market participants’ attention to other companies across the value chain and how they can generate returns on their significant capital expenditures. A strained energy grid will likely limit the industry’s ability to add capacity and meet rising compute demand, which is creating opportunities in renewables and nuclear power. Enterprise adoption of AI is still in its early stages; there are potential applications across healthcare, energy, retail, and other sectors that will help fuel productivity and innovation. With macro uncertainty an ongoing theme, investors could benefit by focusing on companies that have strong competitive moats and can capitalize on multi-year opportunities with unique products. These are characteristics that can enable companies to grow regardless of the economic backdrop.
• Affordability and the real estate cycle: There is high conviction that real estate is in the early innings of the recovery cycle. Valuations are now broadly in line with historic averages, and growth over the next 1-2 years will be partly driven by demand and capital flows into core real estate. Affordability and a structural housing shortage remain key themes driving demand in the living sector, particularly for rental housing. Investors may find opportunities in larger multi-family housing that is built to rent, which has been attractive to a younger cohort seeking more affordable options. Co-living is another appealing solution to affordability challenges amid persistent rental demand near city centers. Senior housing is also facing a supply crunch that will take years to resolve, creating long-term investment opportunities. It will be important for real estate investors to monitor regulatory developments affecting the living sector, potential headwinds to the construction of new housing supply, and how data-center tenants’ cash positions could change as the AI race plays out.