Investment Strategy | October 26, 2026

Higher interest rates create headwinds across markets, but firm economic activity, supply constraints and resilient corporate profits support a selective preference for commodities, equities and parts of private equity while warranting caution on developed-market bonds outside the U.S.

• Commodities have gained 35% year to date as of October 20 even though the 10-year inflation-adjusted Treasury yield reached 2.9%; the report expects U.S. real GDP growth of 2.2% in 2026 and 2027 to support demand.
• Energy supply remains constrained because 40% of Middle East exports are bypassing the Strait of Hormuz, refining capacity has been damaged and oil and fuel inventories are at multi-year lows; copper demand could exceed supply by nearly 30% by 2035, according to the IEA.
• The 10-year U.S. Treasury yield is near 5%, more than one percentage point above its February 27 low, and the equity risk premium is near its 25-year low; however, a negative premium did not prevent the S&P 500 from returning approximately 18.2% annualized during the 1990s.
• France illustrates the fiscal risks facing developed-market bonds: its 2025 budget deficit was 5.1% of GDP, while political disagreement, higher defense and energy spending, and rising debt are also pressuring Italy, Spain and Japan.
• Private-equity activity remained uneven through the third quarter; venture-capital investment exceeded $500 billion, about 45% above the previous full-year record from 2021, while higher rates may constrain financing and exits.

Takeaway: The institute continues to favor commodities and equities, remains unfavorable on developed-market fixed income outside the U.S., and prefers secondaries, growth equity, and small- and mid-sized buyouts within private equity, while expecting commodity gains to moderate and market volatility to remain elevated.