Structural investment remains a powerful force across equity markets, which continue to be supported by spending on AI infrastructure, power, healthcare innovation, and industrial capacity. At the same time, higher rates and rising capital costs are widening the gap between companies that simply benefit from those trends and those that translate them into durable earnings growth. As dispersion increases, identifying quality businesses with pricing power, strong balance sheets, and disciplined capital allocation is becoming increasingly important.
Equity markets continue to benefit from some of the most powerful investment themes of the past decade. Spending on AI infrastructure, power generation, data centers, healthcare innovation, and defense remains substantial, while corporate earnings have proven more resilient than expected. On the surface, that creates a constructive backdrop for risk assets. Yet, expectations are becoming more demanding as forecasts for the tech sector remain ambitious.
Simultaneously, the requirements for success are evolving. Higher interest rates, persistent inflation pressures, and rising capital costs are making it harder for companies to convert growth opportunities into durable earnings. Participation alone is no longer enough. Investors increasingly want evidence of pricing power, disciplined capital allocation, strong balance sheets, and the ability to generate sustainable cash flow.
That distinction is becoming more important across sectors. The beneficiaries of structural investment extend well beyond technology into industrials, energy infrastructure, healthcare, materials, and financials. At the same time, the gap between companies is widening. Businesses operating in the same industry can face very different outcomes depending on their capital intensity, competitive position, and ability to execute.
As markets move toward year-end, the challenge is becoming less about identifying the right themes and more about finding the companies best positioned to turn those themes into lasting value. In a market characterized by higher financing costs and greater dispersion, selectivity may prove one of the most valuable investment advantages.
For more thoughts and sector-level analysis on Equity markets in the period ahead, read our 4Q 2026 Equity Perspectives.
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return.
The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice.
Principal Asset Management leads global asset management at Principal.®
For Public Distribution in the U.S. For Institutional, Professional, Qualified and/or Wholesale Investor Use only in other permitted jurisdictions as defined by local laws and regulations.
In Europe, this communication is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients.
© 2026, Principal Financial Services, Inc. Principal Asset ManagementSM is a trade name of Principal Global Investors, LLC. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc.
Don’t want to get these types of emails from us? You can manage your preferences or unsubscribe online.
6045074