Northern Trust Sees AI Driving Private Markets, U.S., Japan and Australia to Lead Returns
Northern Trust Asset Management has released its Capital Market Assumptions (CMA) 2026 Edition, offering a forward-looking framework for how global markets, asset classes, and investment strategies are expected to evolve over the next decade. Grounded in rigorous macroeconomic analysis and long-term capital market research, the latest CMA outlines a cautiously optimistic outlook characterized by stabilizing fixed income returns, market-leading equity opportunities in select developed markets, resilient real assets, and particularly strong prospects for private markets driven by innovation and artificial intelligence-led transformation.
Capital Market Assumptions as a Strategic Investment Compass
The Capital Market Assumptions published annually by Northern Trust Asset Management serve as a foundational guide for long-term portfolio construction, strategic asset allocation, and risk-aware investment decision-making. Rather than focusing on short-term market cycles or tactical positioning, the CMA evaluates structural forces that are expected to shape returns across equities, fixed income, real assets, and alternatives over a full market cycle. The 2026 Edition reflects an investment environment defined by the intersection of rapid technological innovation, aging populations, shifting global trade relationships, and mounting fiscal pressures, all of which collectively influence expected risk and return dynamics across regions and asset classes.
A Decade Defined by Innovation, Demographics, and Fiscal Realities
At the core of Northern Trust Asset Management’s outlook are three powerful and interrelated long-term trends that are expected to define the global economy and capital markets over the next ten years: rising innovation alongside declining demographics, a global shift toward economic self-reliance, and the growing burden of government debt and fiscal deficits. These structural forces form the backbone of the CMA’s return expectations and underscore the importance of balancing growth opportunities with prudent risk management in portfolio construction.
Artificial Intelligence as a Structural Growth Catalyst
Artificial intelligence emerges as one of the most significant drivers of productivity and economic transformation in the decade ahead. Northern Trust Asset Management highlights AI’s potential to reshape labor markets, enhance operational efficiency, and unlock new sources of economic growth at a time when many developed economies are grappling with aging populations and slowing workforce growth. By augmenting human labor through automation, robotics, and advanced analytics, AI has the potential to offset demographic headwinds that would otherwise constrain economic expansion. At the same time, the widespread adoption of AI introduces new challenges related to workforce displacement, skill mismatches, and the need for large-scale retraining initiatives across industries.
Balancing Productivity Gains with Workforce Disruption
While AI-driven productivity gains present a powerful tailwind for corporate earnings and economic output, Northern Trust Asset Management emphasizes that these benefits will not be evenly distributed. Certain sectors and regions are expected to capture outsized gains, particularly those with strong innovation ecosystems, deep capital markets, and flexible labor policies. Conversely, industries and economies that struggle to adapt to technological change may face heightened volatility and social pressures. Monitoring productivity trends, labor participation rates, and human capital investment will therefore be essential for investors seeking to identify sustainable long-term opportunities while managing downside risks.
Equity Market Leadership Concentrated in Select Developed Markets
Within global equities, Northern Trust Asset Management forecasts that the United States, Japan, and Australia are well-positioned to deliver market-leading returns over the next decade. These markets are expected to benefit from distinct but complementary structural advantages that support earnings growth, shareholder returns, and economic resilience. The CMA projects average annualized equity returns of 6.8% for the United States, 7.3% for Japan, and 7.7% for Australia, placing them at the forefront of developed market equity performance.
United States Equities Driven by Technology and Innovation
U.S. equities are expected to continue benefiting from the country’s leadership in technology, artificial intelligence, and innovation-driven productivity gains. The depth of U.S. capital markets, the dominance of globally competitive technology firms, and ongoing investment in digital infrastructure position American companies to capitalize on AI adoption across sectors. While elevated valuations and rising fiscal pressures present potential headwinds, Northern Trust Asset Management believes that long-term productivity growth and innovation-led earnings expansion will support attractive risk-adjusted returns for U.S. equities over the next decade.
Japanese Equities Supported by Structural and Policy Catalysts
Japan stands out as a compelling equity market opportunity, with Northern Trust Asset Management projecting strong long-term returns driven by a combination of economic reforms, improving corporate governance, and renewed focus on shareholder value. Structural changes in Japan’s corporate sector, including higher capital efficiency, increased share buybacks, and enhanced transparency, have improved the investment case for Japanese equities. Additionally, Japan’s embrace of automation and robotics positions it well to mitigate demographic challenges while maintaining industrial competitiveness in a rapidly evolving global economy.
Australian Equities Benefiting from Financial Strength and Resources
Australian equities are forecast to deliver the highest returns among the three leading markets, supported by a robust banking sector, stable regulatory environment, and significant exposure to natural resources. Australia’s role as a key supplier of critical commodities positions it favorably amid rising global demand for energy transition materials and infrastructure investment. Combined with a resilient domestic financial system and strong dividend culture, these factors contribute to attractive long-term return expectations for Australian equities.
Fixed Income Poised for Improved Stability and Income
After a period of heightened volatility driven by inflation shocks and aggressive monetary tightening, fixed income markets are expected to deliver more stable and attractive returns over the coming decade. Northern Trust Asset Management forecasts average annualized returns of 5.0% for U.S. investment-grade bonds and 4.6% for U.S. Treasurys, reflecting higher starting yields and improved income potential for long-term investors. The normalization of interest rates and more predictable inflation dynamics are expected to restore fixed income’s role as a stabilizing force within diversified portfolios.
Global Bond Markets Offer Income with Lower Volatility
Beyond the United States, investors in European, U.K., and Japanese government and high-quality bonds are expected to benefit from modest but steady income streams accompanied by relatively low volatility. While return expectations in these markets may trail U.S. fixed income, their diversification benefits and defensive characteristics remain valuable in managing portfolio risk, particularly in an environment marked by geopolitical uncertainty and fiscal challenges.
Real Assets Gain Momentum from AI and Infrastructure Demand
Real assets are expected to play an increasingly important role in diversified portfolios as artificial intelligence and technological innovation drive demand for physical infrastructure, energy systems, and essential resources. Northern Trust Asset Management forecasts attractive long-term returns across key real asset categories, including global infrastructure at 6.7%, natural resources at 6.4%, and global real estate at 6.2%. These assets offer a combination of income generation, inflation protection, and exposure to long-term structural investment themes.
Infrastructure Investment Accelerated by Digital Transformation
The rapid expansion of AI, cloud computing, and data-driven technologies is fueling unprecedented demand for digital infrastructure, including data centers, power generation, transmission networks, and transportation systems. Infrastructure assets that support these technological ecosystems are expected to benefit from long-duration cash flows and increasing utilization, making them particularly attractive to institutional investors seeking stable returns in a changing economic landscape.
Natural Resources and the Energy Transition
Natural resources are also positioned for sustained demand as economies pursue energy transition goals, supply chain diversification, and resource security. Investments in metals, minerals, and energy-related assets are expected to benefit from both cyclical recovery and long-term structural demand driven by electrification, renewable energy deployment, and geopolitical realignment of supply chains.
Private Markets as a Primary Engine of Outperformance
Among all asset classes, Northern Trust Asset Management expects private markets to deliver the strongest long-term returns, outperforming public markets over the next decade. The CMA projects a combined average annualized return of 10.2% for private equity and venture capital, reflecting the sector’s ability to capitalize on innovation, operational improvement, and transformational growth opportunities. Private credit is also expected to generate attractive returns of 8.2% annually, supported by its role in financing infrastructure, corporate expansion, and technological development.
AI as a Catalyst for Private Equity and Venture Capital
Artificial intelligence is expected to significantly influence deal activity and value creation in private markets. Private equity firms are increasingly leveraging AI to identify investment opportunities, enhance operational efficiency within portfolio companies, and drive revenue growth through data-driven strategies. Venture capital is similarly positioned to benefit from the proliferation of AI startups and innovation-driven business models, particularly in sectors such as healthcare, fintech, manufacturing, and enterprise software.
Private Credit Supporting the Buildout of the Digital Economy
Private credit plays a critical role in financing the physical and digital infrastructure required to support AI adoption and technological expansion. As traditional banks face regulatory constraints and capital requirements, private lenders are stepping in to provide flexible financing solutions for data centers, energy projects, and middle-market companies. This dynamic supports attractive risk-adjusted returns while addressing structural financing gaps in the global economy.
The Global Shift Toward Economic Self-Reliance
Geopolitical tensions, trade disputes, and supply chain disruptions are accelerating a global shift toward economic self-reliance and regionalization. Northern Trust Asset Management notes that while this trend may introduce inefficiencies and inflationary pressures, it also creates opportunities for domestic investment, localized innovation, and new strategic alliances. High tariffs, evolving trade policies, and efforts to reduce dependence on foreign suppliers are reshaping global commerce and influencing long-term investment outcomes.
Debt and Deficits as a Growing Constraint on Growth
Rising government debt and persistent fiscal deficits represent one of the most significant challenges to long-term economic stability. Aging populations, increased public spending, and higher interest costs are placing growing strain on national budgets, particularly in developed economies. While the United States may benefit from AI-driven productivity gains that help offset fiscal pressures, other nations with limited innovation capacity and high debt burdens may face constrained growth and reduced policy flexibility.
Risk-Aware Growth as the Cornerstone of Portfolio Strategy
In an environment shaped by innovation, demographic shifts, and fiscal uncertainty, Northern Trust Asset Management emphasizes the importance of risk-aware growth in portfolio construction. Capturing the upside potential of technological advancement and private market opportunities requires careful diversification, disciplined risk management, and a long-term perspective. By balancing growth-oriented assets with defensive and income-generating investments, investors can build resilient portfolios capable of navigating structural change and market volatility.
A Long-Term Framework for Strategic Allocation
Rooted in deep capital market analysis, the CMA 2026 Edition provides a comprehensive framework for understanding long-term return expectations and aligning investment strategies with structural economic trends. By integrating insights across equities, fixed income, real assets, and alternatives, Northern Trust Asset Management offers investors a roadmap for navigating the next decade of market evolution with confidence and clarity.
Accessing the Full Capital Market Assumptions Report
The complete Capital Market Assumptions 2026 Edition includes detailed 10-year forecasts, methodology explanations, and asset class insights designed to support institutional and individual investors alike. The full report is available through Northern Trust Asset Management and serves as a critical resource for those seeking to position portfolios for long-term success in an increasingly complex global investment landscape.
About Northern Trust Asset Management
Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments in efforts to realize their long-term objectives. Entrusted with $1.4 trillion in assets under management as of September 30, 2025, we understand that investing ultimately serves a greater purpose and believe investors should be compensated for the risks they take — in all market environments and any investment strategy. That’s why we combine robust capital markets research, expert portfolio construction and comprehensive risk management in an effort to craft innovative and efficient solutions that seek to deliver targeted investment outcomes. As engaged contributors to our communities, we consider it a great privilege to serve our investors and our communities with integrity, respect and transparency.
Northern Trust Asset Management is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking services to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has a global presence with offices in 24 U.S. states and Washington, D.C., and across 22 locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of September 30, 2025, Northern Trust had assets under custody/administration of US$18.2 trillion, and assets under management of US$1.8 trillion. For more than 135 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit us on northerntrust.com. Follow us on Instagram @northerntrustcompany or Northern Trust on LinkedIn.
Northern Trust Corporation, Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A., incorporated with limited liability in the U.S. Global legal and regulatory information can be found at https://www.northerntrust.com/terms-and-conditions.
The publisher’s sale of this reprint does not constitute or imply any endorsement or sponsorship of any product, service or organization.
Unless otherwise noted, the statements expressed herein are solely opinions of Northern Trust. Northern Trust does not make any representation, assurance, or other promise as to the accuracy, impact, or potential occurrence of any events or outcomes expressed in such opinions.
