Manulife stays constructive on risk assets in Q3 outlook

Global equities posted double-digit gains across most major markets in the second quarter, while bond returns stayed muted. That split is the backdrop for Manulife Investment Management's Q3 asset allocation outlook, written by Robert E. Sykes, senior portfolio manager and head of U.S. asset allocation on the multi-asset solutions team, and published in Insurance AUM Journal.

Sykes sees 2026 defined so far by resilient economic growth, strong corporate earnings and robust risk-asset performance. The foundations of the expansion remain intact, he argues: healthy labor markets, resilient consumer spending, business investment still providing support. The constructive call comes with a caveat: many markets have already priced in a fair amount of good news.

Two developments shaped the quarter's risk backdrop. Middle East tensions that weighed on sentiment earlier in the year largely eased, helping support a stronger risk backdrop. The Federal Reserve, meanwhile, entered a new era of leadership, bringing changes in communication style that introduce fresh uncertainty around the future path of monetary policy.

For insurance general accounts, the Fed's communication style is more than atmospherics. Asset-liability modeling depends on assumptions about the rate path, and a central bank that changes how it talks changes the confidence interval around those assumptions. Sykes flags inflation as the key risk, but he also points to recent signs of moderation suggesting policy rates may be near their peak across much of the developed world. If that holds, the duration question for general accounts shifts from whether to hide from rates to when to extend.

The outlook is deliberately a process argument rather than a target list. Sykes advises investors to focus on the structural forces shaping markets instead of attempting to forecast every short-term headline. He calls for diversification, discipline and identifying areas where leadership is broadening. That last point carries weight. In a market where leadership broadens, selectivity becomes a source of return, not just a risk-management exercise.

For the insurance investor, the translation is practical. Muted bond returns mean the fixed-income sleeve is not providing its typical carry. The implied task falls to equities and credit. The published outlook does not spell out specific allocation shifts; it offers a stance. The report says elevated expectations, evolving monetary policy and geopolitical uncertainty all require a balanced approach.

The balanced approach is not a hedge. It is an admission that the range of outcomes is wide. With inflation still the central risk but moderating, and the Fed still finding its voice, Manulife's posture says the market can absorb the uncertainty as long as the fundamentals hold. The risk is that the fundamentals have already been paid for. Sykes acknowledges that tension, and his answer is to stay invested, stay diversified, and keep looking for places where leadership is still broadening.