Extraordinary AI-driven earnings growth is powering markets to new heights despite stubborn inflation prompting global central banks to adopt hawkish stances. We maintain only a slight overweight in equities as valuations are elevated and the appeal of bonds has improved. Economy The global economy continues to grow solidly despite a barrage of headwinds from the Strait of Hormuz closure, rising yields, questions about the AI boom, more U.S. tariffs and elevated inflation. U.S. AI CapEx are contributing between 0.5% and 0.75% to the country's GDP 2026 growth rate. Our economic growth forecasts mostly land ahead of the consensus for 2027, and include an AI-driven acceleration in productivity growth. Our business cycle scorecard and our suite of recession models are constructive, suggesting that the risk of a contraction over the next year is unusually low. RBC GAM GDP forecast for 2027: developed markets Note: RBC GAM forecast as of August 25, 2026., consensus forecast as of September 4, 2026. Source: Bloomberg, RBC GAM Fixed income The era of monetary easing is transitioning toward tightening with inflation still higher than target. Over the quarter, the U.S. 10-year Treasury yield rose to 4.75%, up from 4.44% at the end of May, while the 30-year yield climbed to 5.24% – its highest level since 2007. At these levels, we believe the scope for significant further increases in yields is limited, and that sovereign bonds offer improved return potential with diminished valuation risk. We expect government bonds to deliver mid-single-digit returns, and slightly higher returns for corporate bonds with credit spreads near historic lows. U.S. 10-year T-bond yield Equilibrium range Note: As of August 31, 2026. Source: RBC GAM Equity markets Our composite of global equity markets was situated approximately 14% above fair value as of August 31, 2026. With valuations unlikely to be a reliable source of gains, earnings growth will be essential to sustain the rally. Analysts' S&P 500 earnings growth forecast for 2026 has more than doubled from 15% at the beginning of the year to 34%, remarkably occurring mid-cycle rather than during a post-recession recovery. We expect equities to deliver mid-to-high single-digit gains as those expected earnings are mostly delivered. Global stock market composite Equity market indexes relative to equilibrium Note: As of August 31, 2026. Source: RBC GAM