Strong corporate fundamentals and an AI-driven portfolio tilt underpin the asset manager's August 2026 outlook
Franklin Templeton Investment Solutions is maintaining an optimistic stance on global equities heading into August 2026.
The firm says that strong corporate earnings provide a compelling "risk-on" case that outweighs persistent inflation concerns and renewed geopolitical pressures in the Middle East.
Market expectations for earnings-per-share (EPS) growth over the next 12 months remain above 20% for global and US equities, and as high as 35% for emerging market equities, according to data from the Institutional Brokers' Estimate System (IBES) as of July 13, 2026.
Earnings breadth has also improved materially in the United States, reducing the market's previous over-reliance on a narrow group of technology stocks.
A broadly neutral macro backdrop
The firm characterizes the overarching macroeconomic picture as "broadly neutral." The Atlanta Fed's GDPNow model estimated annualized US growth at 5.0% at the end of July 2026, while unemployment held at 4.2%; signs of a resilient, consumer-driven economy.
But inflation remains the key complication: core Personal Consumption Expenditures (PCE) inflation came in at 3.3% in June 2026, well above the Federal Reserve's 2% target, according to Bureau of Economic Analysis (BEA) data. The report describes Fed Chair Warsh's approach as creating "additional uncertainty" and ultimately expects the Fed will need to tighten further.
The AI tilt
Despite a July 2026 shift toward a more style- and size-neutral US equity position, Franklin Templeton retains an artificial intelligence tilt, with overweight exposure to the US, Japan, and emerging markets.
The firm argues that while AI hardware trades saw some July volatility as investors took profits, the underlying adoption story is intact and less-crowded positions now look more attractive at lower valuations. The report does flag AI commoditization as a risk: if broader-economy adopters stop requiring the latest hardware models, capital expenditure demand could fall; good for hyperscalers, but negative for semiconductor and hardware suppliers.
Regional divergences
Regional equity views are mixed. Franklin Templeton remains underweight European equities despite improving growth indicators, citing energy price risk and the likelihood of a more hawkish European Central Bank (ECB).
Australia is the firm's least favored market: the Reserve Bank of Australia (RBA) has hiked rates twice since March 2026, restrictive policy has weakened domestic demand and housing, and fragile Chinese commodity demand compounds the pressure. With financials and materials making up 67% of the Australian index (MSCI Australia Index data), the firm takes a broadly bearish view.
Bonds: international duration preferred
US Treasury yields reached 4.74% on the 10-year as of July 31, 2026 (Bloomberg), prompting Franklin Templeton to trim its underweight.
However, the firm sees greater value in international duration, arguing that weaker growth outlooks outside the US make market rate-hike expectations in those regions too aggressive.
UK Gilts are a specific call-out as offering value, given fragile growth and a Bank of England rate the firm believes is already above neutral. Canadian government bonds were also upgraded, with the Bank of Canada softening its hawkish tone amid weak leading indicators.
Asset allocation settings
At the asset-class level, Franklin Templeton's August 2026 settings show equities tilted toward optimistic, bonds near neutral, alternatives carrying a modest bullish lean, and cash underweight with the equity overweight funded by the underweight to cash.
The firm sees excess returns from equities as more attractive than credit at present, given strong earnings and tight spreads. Private assets and energy-linked alternatives also receive structural support, with the firm noting that AI-driven demand offers long-term tailwinds for energy and industrial metals.
