With sticky inflation that could trend higher as M2 accelerates, and a higher-for-longer rate regime, Elizabeth Burton favors income, real assets, and private credit, especially over increasingly stretched AI-linked exposures
Fortress Investment Group released its 2026 Mid-Year Outlook, authored by Chief Strategist Elizabeth Burton. The report strikes a posture that is “cautious, but selectively constructive,” arguing that a spring easing in geopolitical risk and energy has calmed markets – but the underlying setup remains fragile.
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“From where we sit, the outlook may call for positioning that is less a bet on catastrophe than an insistence on being paid to wait – on cash flows, uncorrelated return streams, and discipline on long-duration equity,” says Mrs. Burton.
With the Federal Reserve leaning hawkish and the 10-year Treasury near 4.5%, Mrs. Burton urges allocators to stay invested in quality and income while keeping selective hedges. She flags six themes for the second half of 2026, three out-of-consensus and three constructive:
- Contrarian: Inflation higher, not lower: Inflation is more likely to move up than down and could run north of 4% by year-end – above both the Fed’s estimates and the Bloomberg contributor composite – as the impact of M2 reaccelerating at a nearly 7% quarterly annualized pace feeds through to inflation numbers with a 12- to 18-month lag.
- Contrarian: A 5-handle on the 10-year: With the curve repricing higher and term premium rebuilding, Mrs. Burton would not be surprised to see the 10-year Treasury reach 5% by year-end.
- Contrarian: Private credit could outperform median buyout private equity over the medium-term. Mrs. Burton believes the reasons to prefer private credit in private markets are substantial, and support a marginal dollar asset allocation to private credit over private equity.
- Fade the duration rally the consensus keeps waiting for until the inflation situation is clearer. Consider staying in fixed income through TIPS, as nominal 10-year Treasuries near 4.5% may not compensate for the inflation path we expect. TIPS can deliver yield plus inflation protection.
- Constructive but selective in credit: Mrs. Burton believes bilaterally negotiated credit is the way to play these markets on a risk-adjusted basis. Consider leaning into floating-rate and asset-based finance. Floating-rate middle-market credit at high single to low double-digit all-in yield and asset-based finance, where collateral values inflate with the price level or short duration allows reinvestment at higher rates, can be both defensive and offensive exposures in this environment.
- Own real assets. Mrs. Burton believes infrastructure with CPI-linked cash flows and gold are the cleanest expressions of the negative-real-rate trade. Gold’s structural support through central bank purchases should continue in the long term and it remains a historically valid geopolitical hedge, although a hawkish fed reduces gold demand in the near term.
Mrs. Burton identifies five key risks to the Outlook:
- Money-supply velocity that slows rather than normalizes;
- A genuine AI-led growth shock;
- A faster-than-expected normalization of the Strait of Hormuz;
- A ‘Goldilocks’ scenario of AI productivity that proves quickly dis-inflationary, with job market equilibrium and Fed rate cuts;
- A new Fed that proves credibly disinflationary.
Mrs. Burton continues, “We hold our views with conviction but not certainty: a genuinely cooling labor market, M2 velocity that reverts rather than normalizes, or a new Fed that proves credibly disinflationary would each force a rethink. Until the higher-for-longer thesis is meaningfully challenged, we think investors should be positioned for the wave, not the lull.”
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