Espiria Market Outlook 2026

Over the past year, progress in the real economy has been hesitant. Geopolitical actions, particularly US import tariffs, have clearly dampened growth. At the same time, inflation is under control in the US, Europe and the Nordic countries, although levels vary by region. Short-term interest rates have fallen, and both the US and European yield curves have normalised.

One notable consequence of trade restrictions and several years of substantial budget deficits in the US is the significant weakening of the US dollar. Against the dollar, most major currencies including the Swedish krona, have strengthened.

As is often the case when the dollar weakens, commodity prices have risen in this cycle. The main exception is oil, where a weak global outlook, lower transport volumes and an oversupply from OPEC countries have pushed prices down. Strong demand for base metals, driven by heavy investment in defence, infrastructure and data centres, has pushed up prices.

In the US, year-on-year inflation has fallen to around 3%. While this is above the long-term target, the Fed considers factors such as growth and employment when setting the policy rate.

This contributed to relatively high short-term interest rates of between 3.75% and 4% (December 2025). Growth in 2026 is expected to reach 2.1%, which is slightly above the IMF’s 2025 forecast of 2%.

In Europe, inflation is broadly in line with the ECB's target of 2%, the policy rate is also 2%. However, Europe, and particularly the euro area, continues to struggle with weak productivity and slow population growth, which is reflected in a low growth outlook. The IMF forecasts growth of 1% in 2026.

As of December 2025, the Riksbank in Sweden has cut the policy rate to 1.75%. Inflation, at 2.1%, is broadly in line with the long-term target. The yield curve has normalised gradually over the past two years. Growth is increasing, supported by lower short-term rates and expansionary fiscal policy. According to the IMF, Swedish growth is expected to reach 1.3% in 2026, slightly above that of the euro area.

Outlook: equities

Equity markets have once again demonstrated robust performance over the past year, significantly outperforming initial expectations at the beginning of the period. The S&P 500 rose 16% in USD terms although, considering currency impacts and the strong Swedish krona, in krona terms the return was minus 1%. Japan's Nikkei 225 increased by 29% in yen, while the Eurostoxx 600 rose by 13% in euro terms, equivalent to gains of 9% and 7% respectively when stated in Swedish krona.

The largest technology companies, predominantly US firms, once again demonstrated strong performance, supported by robust growth across the ecosystem linked to data centre investments. The ten largest companies in the S&P 500 now represent 40% of the S&P 500 index's total market value. In the US, the information technology and communication services sectors were the main drivers of growth, with the financial sector also demonstrating significant momentum. In Western Europe, the situation is more varied, partly because technology companies account for a much smaller share of the market. In this sector, financial services have demonstrated the highest levels of performance.

Companies lacking clear structural growth drivers linked to technological development have historically experienced weak sales growth and mediocre share price performance. It is evident that only firms with clear market leadership and demonstrable long-term growth have been rewarded. These roles are primarily in the IT and communications sectors, with some opportunities also available in the industrial and consumer goods sectors.

The outlook for the healthcare sector is more complex, with future sales depending on regulatory approvals, patent cycles and successful innovation. Valuations therefore tend to reflect expectations of success rather than predictable earnings.

Macroeconomic conditions indicate that 2026 will be a year of moderate growth. This environment should gradually support rising corporate earnings across sectors. “Early-cycle” companies tend to be the first to benefit, although factors such as import tariffs can impact margins. A prime example of this is the automotive sector, which has historically demonstrated robust performance in the early stages of the economic cycle. However, in the current economic climate, the sector is experiencing a more modest uptick. Global companies will, however, continue to adapt swiftly to new circumstances. With stronger consumption and rising investment in both the IT and industrial sectors, the real economic outlook remains positive.

The clouds on the horizon are indicative of elevated risk-taking behaviour in prominent sectors and the overvaluation of risky assets. Equity valuations are above historical averages worldwide, especially in the US. This should not be interpreted as an indication of an imminent downturn. However, it is imperative that high valuations are supported by long-term earnings growth. While the conditions are satisfactory, the overall risk level remains high.

In addition to the macroeconomic conditions in the major developed regions, it is the sector dynamics that will be the key drivers of long-term value creation, rather than the effects of individual countries. Concurrently, market sentiment, risk appetite and capital flows exert significant influence on short-term returns, resulting in equity prices and the real economy frequently deviating from each other.  

Outlook: Nordic fixed income

In 2026, the Nordics are projected to experience faster growth compared to much of Europe. While growth in the euro area is forecasted at 1%, the Nordic economies are expected to grow by between 1.5% and 2%, supported by stabilising real incomes and resilient labour markets. Public finances remain robust, and the Nordic banking sector offers a level of stability that many European peers lack.

Investment Grade (IG) 

The IG market is stable and in balance between supply and demand. A strong corporate balance sheet is an indicator that the risk of default is minimal. Nordic tier 1 banks are a prime example of this resilience, with robust capital buffers, strict lending discipline and consistent profitability, even in the face of shifting monetary policies. IG spreads remain wider than before the rate-hiking cycle began, meaning investors are paid more today for high-quality risk. Managing refinancing needs is a straightforward process, and IG bonds continue to offer low volatility and steady returns.

High Yield (HY) 

It is anticipated that the High Yield (HY) market will be more event-driven in 2026. The Nordic region maintains its superior credit profile in comparison to the rest of Europe. A key difference is market structure, where a higher share of secured bonds and clear covenants increase expected recoveries in the event of default, reducing overall risk. Selectivity remains essential for achieving strong risk-adjusted returns.

Going into 2026, overall, the Nordic fixed income and credit market has stronger prospects than many other European markets. IG bonds and a selective approach to HY both offer attractive opportunities. A meaningful allocation to floating rate notes further supports expected risk-adjusted returns.

Espiria funds heading into 2026

Espiria Global Innovation

The development of AI is progressing at an unprecedented rate, yet it remains only in its infancy. Innovation and profitable growth are key factors when evaluating potential holdings. It is also vital to undertake sound valuations based on fundamental analysis. The fund's primary investment focus is on the IT, communication and healthcare sectors.

Espiria Hållbar Framtid

Achieving a more sustainable society is vital if we are to meet global climate targets and improve the lives of billions of people worldwide. Although the pace of transition slowed somewhat last year, the direction remains clearly positive. Climate risks are acute and transformation is necessary, meaning many companies play a crucial role through their solutions and innovations. The fund strategically invests in companies that are dedicated to supporting global sustainability goals (SDGs), with a focus on the healthcare, industrials and materials, and IT sectors. These sectors collectively account for over 80% of the fund's portfolio.

Espiria 30, Espiria 60, Espiria 90

On the fixed income side, the portfolios are expected to mature within three years, with most bonds maturing in 2026. This helps to mitigate the adverse impact of widening credit spreads. Most holdings feature floating coupons that adapt to prevailing market conditions, thereby mitigating interest rate risk. Each bond position is deliberately small, and exposure is broadly diversified. The equity allocations are focused on quality companies with valuations supported by normalised earnings. With a balanced mix of equities and fixed income and a relatively constructive macro-outlook, the portfolios are well positioned for 2026.

Espiria Nordic Corporate Bond

The Nordic credit landscape is expected to remain stable in 2026. It is anticipated that banks will continue to represent the largest sector exposure in the fund, thereby providing a solid base for the portfolio. The strategy invests in both investment grade and high yield, with high yield used selectively where careful credit analysis can identify mispricing opportunities. In the Nordic region, Norway will most likely reduce policy rates further in 2026, while other central banks are expected to maintain their current rates. The current lower-rate environment should help to reduce future defaults, thereby strengthening the long-term return potential.

Espiria Sweden Small Cap 

This strategy focuses primarily on Swedish small caps, with some broader exposure to Nordic small caps. Historically, small-cap stocks have consistently outperformed large-cap equities. However, in 2025, the opposite was true, with valuations reaching historically attractive low levels. It is anticipated that earnings growth for small caps will outperform that of large caps in 2026, suggesting a promising outlook for the asset class. The fund's strategic focus is on smaller small caps, with a particular emphasis on consumer and healthcare companies.

Summary

The market backdrop heading into 2026 is characterised by lower inflation, stabilising interest rates and moderate economic growth.

For equity markets, the outlook differs between the US and Europe. In the US, inflation has receded to more manageable levels, and growth is expected to remain relatively robust. Investments in data centers and digital infrastructure have driven strong performance among technology companies, which have significant index weightings. The main risks relate to the lagged effects of implemented trade tariffs and geopolitical developments, where a peace agreement for Ukraine would be positively received. Equity market valuations are somewhat demanding but can be justified provided earnings growth over the coming years meets expectations. Our base case is a return of around 10 percent for the full year, lower than in 2025, measured in local currencies.

Europe faces a weaker economic environment, with low productivity growth and limited expansion. Inflation is close to the ECB’s target, and the yield curve is gradually normalising. Valuations of European companies are more attractive than in the US, providing fundamental support despite subdued growth prospects. A gradual recovery is possible during 2026, although overall momentum is expected to remain modest.

The Nordic region continues to stand out, supported by stronger economic fundamentals, sound public finances, and stable credit markets. The Swedish krona has strengthened broadly, and the region is expected to deliver better growth prospects than the euro area in 2026. Falling short-term interest rates and robust banking systems create favourable conditions for Nordic corporate bonds, although returns are expected to be slightly lower than in the previous year.

Our approach remains centered on long-term thinking, quality, and portfolio balance.

Within equity management, we focus on market-leading quality companies with clear structural growth drivers such as innovation and sustainable development. Through effective diversification, we aim to build a well-balanced equity exposure, with an emphasis on companies that combine strong business models and solid earnings capacity with well-supported valuations.

Within fixed income management, across our bond and mixed asset funds, we focus on Nordic corporate bonds. Based on our in-house credit analysis, strong public finances and a resilient financial system provide favourable conditions for investing in bonds, which offer attractive risk-adjusted returns.