Schroders Equity Lens September 2026: your go-to guide to global equity markets
What is the outlook for equity returns relative to bonds?
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The September 2026 edition of the Schroders Equity Lens is now available: Schroders Equity Lens
Summary:
Big question for investors: by how much do you expect equities to outperform government bonds over the long-run? (slides 6-15)
- Over 155 years of history, they have outperformed by 4.8% a year in the US
- But starting point matters: outcomes on a 10-year horizon vary substantially from 4.8%
- Relative valuations matter: equities outperform bonds by more when their “earnings yield” is high vs bond yields
- “Yield gap” is low right now, a negative signal about equities’ relative prospects over the medium to long term
- But there are 10yr periods when this metric is low yet equities still did well. What was behind these “surprises”?
- usually strong real EPS growth, valuations often declined
- Current consensus US EPS forecasts are high in nominal and real terms; long-term growth forecast is higher even than in the Dotcom era:
- 32% 2026, 16% 2027, 16% 2028, 25% long-term (2029-30)
- If allow for these, expected outperformance of US equities over bonds has been on an increasing trend, even as bond yields have risen
- Realised and forecast earnings still have positive momentum and the equity-bull story can remain intact so long as this continues
- 2026 performance recap (slide 20):
- Value > growth
- EM, Japan > US
- In the US: small cap > large cap, Magnificent-7 underperforming
- Confounding popular narratives, UK and European value stocks have outperformed the S&P 500 over 1, 3, 5 years (slide 21)
- Despite mega cap cheapening, aggregate valuations remain high in most markets, across most valuation metrics (slides 18-19).
- EM stands out as cheap on a forward P/E basis. This hinges on whether sky-high consensus earnings growth forecasts materialise (slide 16)
Chart of the month:
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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.
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