Schroders Equity Lens September 2026: your go-to guide to global equity markets

Equities can continue to outperform government bonds, but their medium- to long-term prospects are constrained by high valuations and depend heavily on strong earnings growth.

• Over 155 years, US equities outperformed government bonds by 4.8% a year on average, although 10-year outcomes varied substantially depending on the starting point.
• Relative valuations matter: equities have generally outperformed bonds more when their earnings yield was high relative to bond yields, while the current low yield gap is a negative signal.
• Low yield gaps have not always prevented strong equity returns; in the successful exceptions, real EPS growth was usually strong even as valuations declined.
• Consensus US EPS forecasts imply growth of 32% in 2026, 16% in 2027, 16% in 2028 and 25% annually over 2029-30, with the long-term forecast higher than during the Dotcom era.
• In 2026, value outperformed growth, emerging markets and Japan outperformed the US, small caps outperformed large caps in the US, and the Magnificent-7 underperformed; emerging markets were cheap on forward P/E but depended on exceptionally high earnings-growth forecasts.

Takeaway: The equity-bull case remains viable while realised and forecast earnings retain positive momentum, but investors should temper expectations because aggregate valuations are high across most markets and the outlook relies on ambitious earnings forecasts.