Executive Summary

Salkku Markets maintains a cautiously neutral stance on global equities over the next 12 months. Both the Salkku Coincident and Leading Indicators remain in negative territory as of early July 2026, though they show clear improvement from Q1 levels. This suggests near-term challenges amid moderating economic momentum, geopolitical tensions (particularly in the Middle East), and elevated volatility in risk assets.

However, Salkku’s machine learning model points to a strong 91% probability of positive stock market returns over the 12-month horizon, supported by a shift toward robust, capex-driven growth—especially in AI-related sectors—offsetting earlier inflation concerns. Broader context from global indicators, such as the Conference Board’s U.S. Leading Economic Index (LEI) and PMI data, reinforces a resilient but uneven recovery picture, with services holding up better than manufacturing.

Investors should remain vigilant on short-term volatility, particularly in high-beta assets like technology stocks, cryptocurrencies, and commodities, while positioning for longer-term opportunities in quality growth and cyclical recovery plays. Overall, the outlook balances caution with measured optimism.

Salkku Coincident Indicator for Global Markets

The Salkku Coincident Indicator assesses the current health of the global economy, drawing primarily from the Composite Global Purchasing Managers’ Index (PMI). This index captures real-time business activity across manufacturing and services sectors.

As of early July 2026, the indicator stands at -0.6, reflecting a slight improvement from Q1 2026 but still indicating sub-trend conditions. Recent PMI readings show manufacturing cooling (e.g., U.S. ISM PMI at 53.3 in June) while services provide relative support, consistent with broader global data amid energy price volatility and moderating demand.

Salkku Leading Indicator for Global Markets

The Salkku Leading Indicator aggregates forward-looking signals—including economic sentiment surveys, new manufacturing orders, yield spreads, and financial market metrics—to forecast global stock market performance over the next 12 months.

In July 2026, it registered -0.5, signaling that returns are likely to lag long-term averages in the near term. This aligns with external benchmarks like the Conference Board U.S. LEI, which has shown modest declines but stabilizing six- and twelve-month growth rates amid resilient business investment.

Model Prediction

Salkku’s proprietary machine learning model forecasts positive stock market returns over the next 12 months with a very high 91% probability. The fragile, inflation-constrained growth outlook prevalent in Q1 has eased considerably. We are now transitioning into a more robust, capital-expenditure-driven expansion across a broad range of industries, particularly those benefiting from AI infrastructure and technological innovation. This shift provides a constructive backdrop for equities, even as cyclical headwinds persist.

Risk Asset Cycles

Risk assets have exhibited reliable cyclical patterns over recent decades, characterized by multi-year “supercycles” and shorter multi-month cycles (typically under one year). High-beta assets—such as technology stocks and cryptocurrencies—show the strongest sensitivity, with commodities displaying moderate exposure.

Current analysis indicates a pause in the most expansionary/speculative phase of the multi-year cycle (previously highlighted in yellow in related figures) and a shift toward contraction. The shorter-term cycle has similarly turned contractionary. With both cycles now aligned in contraction, heightened caution is warranted, especially for the riskiest segments prone to amplified volatility.

Figure 4 illustrates this transition, historically associated with negative performance for speculative assets.

Overall Recommendation

The medium- to long-term outlook remains positive, underpinned by improving indicators, easing inflation pressures, and strong secular tailwinds from AI-driven capex. That said, the short term calls for prudence: anticipate increased volatility and potential drawdowns in high-beta risk assets such as technology stocks, cryptocurrencies, and commodities.

Diversification, focus on quality earnings growth, and selective exposure to resilient sectors are advisable. Salkku will continue monitoring key indicators, including PMI trends, LEI components, and geopolitical developments, for timely updates.

Executive Summary

Salkku Markets adopts a cautious neutral stance on global equities over the next 12 months. Both the Salkku Coincident and Leading Indicators have deteriorated from strong 2025Q4 levels, reflecting softening current conditions and subdued forward-looking signals amid persistent inflation pressures and shifting monetary policy expectations.

While a robust technology-driven capital expenditure (capex) cycle—particularly in AI infrastructure—provides a significant tailwind, rising inflation expectations and the prospect of central banks holding or even raising rates (rather than cutting) are dampening economic momentum and corporate outlooks. Our machine learning model still projects modestly positive equity returns with only a slim 50.2% probability, underscoring a fragile environment.

Risk assets remain in an expansionary phase of the multi-year cycle, supportive for high-beta sectors such as technology and cryptocurrencies, with the shorter-term cycle also turning speculative. Investors should maintain balanced positioning, monitor inflation and policy developments closely, and consider selective exposure to AI beneficiaries while preparing for elevated volatility.

Salkku Coincident Indicator for Global Markets

The Salkku Coincident Indicator tracks the current state of the global economy, primarily through the Composite Global Purchasing Managers’ Index (PMI), which measures business activity in manufacturing and services sectors.

As of early May 2026, the indicator stands at -1.9, marking a notable deterioration from the strong readings in 2025Q4. Recent PMI data shows a mixed picture: the U.S. composite remains in expansion territory (around 51.7–52 in April), while the Eurozone has weakened significantly. Global activity continues to expand modestly overall but at a slower pace than late last year, consistent with broader forecasts of global GDP growth around 3.1–3.3% for 2026.

Salkku Leading Indicator for Global Markets

The Salkku Leading Indicator aggregates forward-looking metrics, including economic sentiment, manufacturing orders, and financial market signals, to predict global stock market performance over a 12-month horizon.

In May 2026, the Salkku Leading Indicator registered a negative reading of -0.33, indicating that global stock market returns are expected to be lower than long-term averages over the next 12 months.

Model Prediction

The global market outlook weakened during 2026Q1. Strong global technology and AI-driven capex investment is being partially offset by a less favorable inflation outlook. Hyperscalers and major tech firms are projected to ramp up capital spending dramatically in 2026 (potentially $500–700 billion collectively), fueling productivity gains and sector leadership. However, higher inflation expectations could prompt central banks to pause rate cuts or even tighten policy, exerting a dampening effect on broader economic activity and prompting companies to temper their 12-month forecasts.

Salkku’s machine learning model nonetheless forecasts positive stock market returns over the next 12 months, albeit with a narrow 50.2% probability. This indicates a fragile baseline vulnerable to adverse shifts in inflation, geopolitics, or capex monetization timelines.

Risk asset cycles

We have identified certain cyclicality in risk assets, which have played out fairly reliably over the past decades. Markets seem to follow a longer term multi-year cycle and shorter multi-month (<1 year) cycle. Risk assets with most beta to this cyclicality are especially tech stocks, and cryptocurrencies, with commodities having a smaller, but non-zero, beta.

Figure 4. is showing a continuation of the most expansionary/speculative phase of the multi-year cycle (in yellow), historically favorable for tech and crypto. The shorter-term cycle has also entered a speculative stage, reinforced by the recent tech rally following April’s dip. When both cycles align in expansion, conditions have typically been especially supportive for high-beta risk assets. Continued monitoring of cycle turning points remains essential.

Overall Recommendation: Maintain a disciplined, diversified approach with emphasis on quality and AI-exposed themes, while hedging against policy and inflation surprises in this balanced but vulnerable environment.

Executive Summary

Global economic conditions remain resilient entering 2026, with the Salkku Coincident Indicator signaling continued expansion (0.8 reading as of early January) amid stable business activity in manufacturing and services. The Salkku Leading Indicator (0.17) points to modestly above-average stock market returns over the next 12 months. Consensus forecasts from institutions like the IMF and World Bank project global GDP growth around 2.6–3.3% in 2026, supported by AI-driven investment and easing policy headwinds, though tempered by trade uncertainties and softening momentum in some regions. Overall, the outlook supports a cautiously optimistic stance for global equities, with potential for solid but not exceptional returns, contingent on sustained earnings growth and contained inflation.

Salkku Coincident Indicator for Global Markets

The Salkku Coincident Indicator tracks the current state of the global economy, primarily through the Composite Global Purchasing Managers’ Index (PMI), which measures business activity in manufacturing and services sectors.

As of January 04, 2026, the Salkku Coincident Indicator recorded a positive reading of 0.8, continuing with strong Q4 readings. This reading is consistent with ongoing global expansion, corroborated by recent PMI data showing the J.P. Morgan Global Composite Output Index at 52.0 in December 2025 (released in January 2026), though slightly lower than prior months, reflecting moderated but still positive momentum.

Salkku Leading Indicator for Global Markets

The Salkku Leading Indicator aggregates forward-looking metrics, including economic sentiment, manufacturing orders, and financial market signals, to predict global stock market performance over a 12-month horizon.

In January 2026, the Salkku Leading Indicator registered a positive reading of 0.17, indicating that global stock market returns are expected to be slightly above long-term averages over the next 12 months. This is backed by broader market expectations of resilient growth driven by technology investments.

Regional Outlook for Global Stock Markets

See detailed Salkku Indicators for United States.

See detailed Salkku Indicators for Eurozone.

Model Prediction

The global market outlook has improved steadily during 2025, with the Salkku machine learning model now forecasting positive stock market returns over the next 12 months with a 73% probability.

Risk asset cycles

We have identified certain cyclicality in risk assets, which have played out fairly reliably over the past decades. Markets seem to follow a longer term multi-year cycle and shorter multi-month (<1 year) cycle. Risk assets with most beta to this cyclicality are especially tech stocks, and cryptocurrencies, with commodities having a smaller, but non-zero, beta.

Figure 4. is showing a resumption of the most expansionary/speculative phase of the multi-year cycle (in yellow) since end of 2024Q4. This phase of the longer cycle has previously been very good for cryptocurrencies and tech stocks. Shorter term multi-month cycle (in red) is still rebounding after bottoming in Q4. This phase of the shorter cycle has previously been very good for cryptocurrencies.

Executive Summary

The Coincident Indicator posted its first positive reading since April 2025 at 1.4 in August, signaling an improving global business environment. The Leading Indicator, at 0.0, suggests market returns will align with historical averages. A machine learning model based on leading indicator components forecasts positive returns with a 72% probability, supported by seasonal strength extending into 2026. Complementary indicators, such as the OECD Composite Leading Indicator and consumer confidence indices, reinforce this cautiously optimistic view. However, risks from geopolitical tensions, monetary policy shifts, and supply chain constraints require ongoing vigilance.

Salkku Coincident Indicator for Global Markets

The Salkku Coincident Indicator tracks the current state of the global economy, primarily through the Composite Global Purchasing Managers’ Index (PMI), which measures business activity in manufacturing and services sectors.

As of August 31, 2025, the Salkku Coincident Indicator recorded a positive reading of 1.4, its first expansionary signal since April 2025. This uptick reflects a strengthening global business environment since the summer, driven by resilient service sector activity and recovering industrial output. The improvement aligns with broader coincident indicators, such as rising global industrial production and stable employment metrics in key economies like the U.S. and Eurozone.

Salkku Leading Indicator for Global Markets

The Salkku Leading Indicator aggregates forward-looking metrics, including economic sentiment, manufacturing orders, and financial market signals, to predict global stock market performance over a 12-month horizon.

In September 2025, the Salkku Leading Indicator registered a neutral reading of 0.0, indicating that global stock market returns are expected to match long-term averages over the next 12 months.

Regional Outlook for Global Stock Markets

To provide a comprehensive view, the following section outlines the 12-month outlook for key regional stock markets, incorporating regional economic trends, leading indicators, and potential risks.

North America

• Outlook: Moderately Positive
• Key Drivers: The U.S., the dominant market in North America, benefits from robust consumer spending and strong corporate earnings, particularly in technology and healthcare sectors. The Conference Board Consumer Confidence Index has trended upward in 2025, supporting equity market resilience. The Federal Reserve’s anticipated gradual rate adjustments provide a stable monetary backdrop, though inflation risks persist.
• Market: The S&P 500 surged to record highs in Q3, fueled by the AI boom and the Fed’s 25 bps rate cut in September. Small-cap stocks also rallied (+8.6%), reflecting optimism around policy easing and resilient U.S. economic data, though consumer defensives lagged.

See detailed Salkku Indicators for United States.

Europe

• Outlook: Neutral
• Key Drivers: European markets, particularly in the Eurozone, are supported by improving industrial production and export activity, as reflected in the Eurozone PMI rising above 50 in mid-2025. ECB’s cautious monetary easing fosters a stable environment for equities, particularly in defensive sectors like utilities and consumer staples.
• Market: European markets underperformed globally, with the MSCI Europe ex-UK index lagging due to tariff uncertainties and slower regional growth. Germany’s DAX saw modest gains from export-heavy firms but faced headwinds from U.S. policy shifts and geopolitical risks.

See detailed Salkku Indicators for Eurozone.

Asia-Pacific

• Outlook: Positive
• Key Drivers: China’s stimulus measures in 2025, including infrastructure spending, support regional growth, particularly in emerging markets. Japan’s equity markets benefit from stable corporate governance reforms and a weaker yen, boosting export-driven sectors. India’s strong GDP growth and rising foreign investment inflows bolster its market outlook.
• Market: Asia ex-Japan led major regions, propelled by a sharp rally in Chinese tech stocks (Hang Seng Tech +22.1%). Chinese stocks are signaling a growing optimism especially towards Chinese tech performance in the near future, supported by strong investments in AI. Stimulus measures and subsiding U.S.-China trade frictions lifted sentiment, with the Shanghai Composite gaining on policy support and strong year-to-date momentum (+46% for tech).

Emerging Markets (Ex-Asia)

• Outlook: Neutral
• Key Drivers: Latin American and African markets are supported by commodity price stability, particularly in energy and metals, benefiting countries like Brazil and South Africa. Improving global trade dynamics enhance export-oriented economies.

Model Prediction

The global market outlook has improved steadily since spring 2025, with the Salkku machine learning model forecasting positive stock market returns over the next 12 months with a 72% probability. This prediction incorporates leading indicator components, including global equity valuations, corporate earnings forecasts, and macroeconomic trends.

Conclusion

The Salkku Markets Outlook for Q4 2025 maintains a neutral stance, reflecting balanced prospects for global stock markets. The positive Coincident Indicator and neutral Leading Indicator, combined with a cautiously optimistic machine learning forecast, suggest moderate growth potential through 2026.

Historical seasonal strength in Q4 and early Q1 supports the model’s optimism. We have also witnessed rising consumer confidence in major markets, such as the U.S. Conference Board Consumer Confidence Index, and increased willingness of governments to support markets with state spending. We expect inflation to remain subdued for the time being, giving central banks room to ease rates as needed.

Salkku Coincident Indicator for world markets

A coincident indicator is an indicator which tells us how the economy is doing right now. We look at changes in Composite Global PMI readings to gauge the development over past few months.

Salkku Coincident Indicator has shown slightly negative readings in last few months, with current reading being -1.1 (Figure 1). This indicates that world business environment in aggregate has been under slight contraction.

Salkku Leading Indicator for world markets

Salkku Leading Indicator for world markets is a collection of individual indicators, which has in the past best predicted world market growth in 12 month period.

Salkku Leading Indicator for world stock markets indicate positive outlook over the next 12 month period (Figure 2), with positive indicator reading of 0.17.

Model prediction

Global market outlook has improved significantly since last spring. Markets do not seem to have discounted any contraction in global economic activity. Instead those are developing very positively. Salkku indicators do not seem to suggest we are in a cyclical downturn, or one that is on it’s way. Machine learning model based on leading indicator components is predicting positive returns for the next 12 months with ~87 % probability.

Salkku Coincident Indicator for world markets

A coincident indicator is an indicator which tells us how the economy is doing right now. We look at changes in Composite Global PMI readings to gauge the development over past few months.

Salkku Coincident Indicator has shown slightly negative readings in last few months, with current reading being -0.7 (Figure 1). This indicates that world business environment in aggregate has been under slight contraction.

Salkku Leading Indicator for world markets

Salkku Leading Indicator for world markets is a collection of individual indicators, which has in the past best predicted world market growth in 12 month period.

Salkku Leading Indicator for world stock markets indicate neutral outlook over the next 12 month period (Figure 2), with neutral indicator reading of 0.00.

Model prediction

While markets have been under stress for a few weeks, Salkku indicators do not seem to suggest we are in a cyclical downturn, or one that is imminent. Machine learning model based on leading indicator components is predicting positive returns for the next 12 months with 71.5% probability.

Salkku Coincident Indicator for world markets

A coincident indicator is an indicator which tells us how the economy is doing right now. We look at changes in Composite Global PMI readings to gauge the development over past few months.

Salkku Coincident Indicator has shown neutral readings in last few months (Figure 1). This indicates that world business environment in aggregate has not experienced any major shocks, which would impair growth, and enterprise outlook is cautiously optimistic with slightly negative indicator reading of -0.4.

Salkku Leading Indicator for world markets

Salkku Leading Indicator for world markets is a collection of individual indicators, which has in the past best predicted world market growth in 12 month period.

Salkku Leading Indicator for world stock markets indicate neutral outlook over the next 12 month period (Figure 2), with slightly positive indicator reading of 0.17.

Model prediction

Machine learning model based on leading indicator components is predicting positive returns for the next 12 months with 70.6% probability.

Coincident economic indicators: PMI

Coincident indicator is an indicator which tells us how the economy is doing right now. We look at changes in Composite Global PMI readings to gauge the development over past few months.

Change in Composite PMI has shown neutral readings in last few months (Figure 1.). This indicates that global business environment in aggregate has not experienced any major shocks, which would impair growth.

History of PMI indicator

Leading economic indicators: Salkku Composite

Our leading indicator for global markets is a collection of individual indicators, which has in the past best predicted global market growth in 12 month period.

Our composite leading indicator for global stock markets indicate cooling outlook over the next 12 month period after very strong readings at the end of 2023. This year, leading indicator turned slightly negative, until bouncing back to neutral value. This indicates that 2024 markets returns should be ok or slightly above normal.

History of leading indicator

Conclusion

Our indicators show neutral market condition, and predict neutral market returns over 12 month period. Slightly higher inflation readings in developed countries haven’t spooked markets, and absent sudden shocks, stock market returns should be ok or slightly above normal.

Coincident and leading indicators

Coincident indicator is an indicator which tells us how the economy is doing right now. For that, Composite PMI readings are still useful when trying to understand the current state of the economic environment.

Our first leading indicator is a custom machine learning model for US markets, which includes not only yield spread, but also time series data like VIX options data and comparing individual market sectors performance vs. aggregate market index. Near term historical performance of individual S&P500 sector indexes, like like technology, industrials, basic materials etc., are compared to aggregate S&P500 index performance. According to analysis, this kind of data has predictive power in large enough timeframe when it comes to performance of the aggregate index.

Our first machine learning model is built to identify leading indicator levels, which precede aggregate market index being lower or higher in the future. This kind of model is able to point best and worst times to invest. The timeframe for our analysis is one year forward.

Coincident economic indicators

Currently Global Composite PMI is barely above 50, indicating economic activity is not expanding or contracting. United States is at 50.2, China at 50.9 and eurozone in recessionary readings at 47.2.

Leading economic indicators

Figure 2. shows previous times in the last three decades where United States government 10 minus 2 year yield spread has been below zero. Most negative outcomes are associated with yield spread being below zero for an extended time.

Figure 3. shows our new machine learning model for US markets built from collection of leading indicators. Currently the model identifies conditions being roughly similar as in 2000 and 2007 market tops. According to our model, leading indicators are presently at levels which have preceded major stock market declines in the past.

Thoughts on 2023Q4

According to our US leading indicator, market conditions do not look good. Yield spread is still negative in US and in other developed economies. That usually has meant market cycle being about to turn to contraction in one year timeframe. We therefore expect S&P 500 performance to be negative in one year time horizon. Because US is the biggest economy by far, this also has a significant sway to other developed regions as well, namely Europe and Japan.

Interestingly market analysts are still predicting earning per share for S&P 500 to grow in 2024 compared to this year. Stock prices usually rise and fall in anticipation of future earnings, so growing earnings would also raise broad stock market indexes. EPS predictions are not very good leading indicators though. For example in 2008 consensus forecast did not start to degrade until right before Lehman collapse in September.

PMI weak, yield curve inverted

World Composite PMI was 53.4 in March, indicating favourable short term economic outlook. World composite PMI started to show signs of economic expansion in February, and has continued the positive momentum in March.

Aggregate yield curve for major developed economies has been fully inverted for entire Q1. Now all of the major developed economies besides Japan have inverted yield curves.

Thoughts on Q2/2023

Recession signal is still strong for medium and long-term outlook, indicating recession to start sometime in 23/24. Recent trouble in banking sector is also exposing difficult operating environment stemming from rapidly rising interest rates. Many people who were following markets in 2007 remember how banking sector troubles were a harbinger for difficult times ahead back then. It seems financial sector on aggregate is not very stable, and even modest headwinds require government intervention.

Steepening yield curve inversion has meant that long-term rates have started to come down in US and Europe. This means that bond markets are expecting rates to drop significantly in medium to long-term, because of central bank easing during recession. This should help households struggling with high mortgage rates and soaring cost of living from high inflation.

In last outlook I wrote that “Absense such a catalyst now, it is likely that stock markets have already priced in the slowing economy and moderating earnings, and we might see a positive year in the markets”. It turns out stock markets had indeed priced in slowing economic outlook, and markets started to improve rapidly at the start of the year. Looming recession is not in itself a reason to worry, because of the tendency of the market to already price in falling earnings. Recent banking troubles were not strong enough catalyst to upset the markets significantly.