US REITs set for rebound in 2026 as rate cuts and valuation gap drive 17% return

By Lauren R. Rublin

If the stock market climbs a wall of worry, that wall is getting higher by the day. Take your pick: Pricey valuations, index concentration, circular finance, sticky inflation, and government debt are just a few of investors' many concerns. Then there is geopolitics, which took a shocking turn on Jan. 3 with the capture of Venezuela's president, Nicolás Maduro, and his wife by U.S. troops.

Yet, for all the worries, old and new, most of the investors on the Barron's Roundtable were in a chipper mood this year at our annual gathering, which took place Jan. 5 in New York. Most expect the U.S. stock market's growth streak to continue in 2026, fueled by rising earnings, falling interest rates, government stimulus, and consumer spending. What's more, they see many thriving companies whose stocks have yet to join the multiyear party on Wall Street — but soon will.

No surprise, the future of artificial intelligence was an overarching Roundtable theme. Whether it lowers "the marginal cost of human intelligence to zero," as one panelist declared, or falls short of its promise, as another suggested, it is driving massive corporate spending and economic growth right now. Just for fun, we asked these 11 seers to identify other megatrends that will capture investors' attention in coming years. Their answers were varied and illuminating.

This week's edited Roundtable installment features the panelists' macro forecasts, including those of our newest Roundtable member, Christopher Rossbach, chief investment officer of J. Stern, a London-based investment firm, and manager of its World Stars Global Equity strategy. Chris is well versed in global investing and a die-hard fan of quality stocks, wherever they are traded.

We also include here the 2026 investment picks of John W. Rogers Jr., the founder, chairman, co-CEO, and chief investment officer of Ariel Investments, and Sonal Desai, chief investment officer and portfolio manager at Franklin Templeton Fixed Income. John continues to hold out hope for a long-overdue rally in small and mid-cap stocks, five of which he explores in detail. Sonal likes the prospects for seven fixed-income-oriented funds, and sees even more gains for gold.

We'll roll out the rest of the panelists' picks in the next two weeks. Read on for the first Roundtable update.

Barron's : This year began with a bang — in Caracas. Where to from here for the markets, if not the world? Rajiv, kick things off.

Rajiv Jain: Our market view has shifted in the past 12 to 15 months. We believe the economy is softening across the board. We are seeing one- to three-year highs in the unemployment rate across almost all major nations. Inflation is unchanged, or higher. Interest rates are higher almost everywhere, except in China. Deficits are at a record percentage of GDP [gross domestic product]. There is still stimulus in the system.

The biggest driver of the economy seems to be the frothy stock market, which has seen a capex [capital expenditure] cycle, driven by AI. We are seeing signs of extreme late-cycle behavior, for example, in the debt financing of data centers. More than 60% of data centers are being built outside of hyperscalers [massive cloud computing companies] with heavy debt usage, far greater than in the dot-com era. Equity valuations are extremely high. In our view, you aren't getting paid to take risks. And that is without discussing geopolitics.

Where will the S&P 500 end the year?

Jain: We see significant downside to the market. A significant portion of earnings revisions are coming from capex. If Microsoft spends $100, it can write off that expense over a six- to 10-year period. But it shows up in revenue and earnings almost immediately at Nvidia or Broadcom or Amphenol. We believe earnings growth is going to slow down meaningfully for the biggest technology companies, not to mention semiconductor companies. We see the rate of change in capex peaking in 2025.

The biggest tech stocks driving the market are the companies ramping up capex. Amazon.com's capital spending is on track to be higher than its AWS [Amazon Web Services cloud computing] revenue. Google's capex is much higher than its cloud revenue. The company's margins went from 5% in 2023 to 22% last year as depreciation was extended to six years from three years. Go back four years, and the business was losing money on a net basis. We believe the true economic life of GPUs [graphics processing units] or TPUs [tensor processing units] is closer to three years.

The market for public cloud appears to be 90%-plus penetrated. The market leaders' growth has slowed. Public cloud and advertising are two key drivers for hyperscalers, but digital advertising penetration is also reaching 75% globally. The Magnificent Seven [ Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla] are mature, with slowing revenue growth and declining free cash flow. That should have a negative impact on the market — and that assumes no blowup in the bond market or anything like that.

Can you estimate per-share depreciation costs across the Mag Seven?

Jain: It is hard to specify on a per-share basis, but in Alphabet's case, there could be a six to seven percentage-point hit to earnings in 2026.

Also, we believe that stock-based compensation is becoming an issue. At Meta Platforms, SBC was 10% of revenue for the four quarters ended September 2025. Amazon's cumulative free cash flow in the past five years was lower than that of Philip Morris International. Free cash flow is meaningfully deteriorating across almost all of the large tech companies. Google hasn't seen any growth in free cash flow since 2021 once you adjust for SBC-related flows, even as its market capitalization has doubled. If the biggest tech stocks and semiconductor names fall, that will take down the broader market.

Who wants to take the other side of this trade?

Todd Ahlsten: I can. We remain positive on the market. We have a year-end target for the S&P 500 of 7500 to 7800. That presumes a price/earnings multiple of 22 to 23 times earnings, on $340 in 2027 earnings. We consider four factors: What does the S&P 500 look like as an asset class? Is the AI buildout a generational theme? How does the U.S. economy look? Our fourth consideration is global liquidity.

To break them down, the S&P 500 is an incredible collection of companies, unmatched globally, that are investing in leading-edge technologies. The reinvestment rate in the U.S., or capex plus research-and-development spending divided by operating cash flow, is about 50% higher than in the rest of the world. U.S. companies continue to innovate, generate higher returns on capital, and widen their moats. They are in the catbird seat to monetize AI.

Rajiv mentioned potential cracks in the AI story, but we think this is a generational investment theme. Companies will invest multiple hundreds of billions of dollars annually for many years to come. There will be some rugged terrain, and perhaps supply-chain and power shortages and drawdowns in certain stocks. But AI will lead to a massive wave of productivity, and be a moat-widening event for U.S. companies.

Third, the U.S. economy looks pretty good in 2026. We expect growth of 2% to 2.5%. The economy has been incredibly resilient no matter geopolitics, policy variability, or the level of interest rates. With the midterm elections approaching, we are going to get fiscal and monetary support. Ultimately, we will have to pay for it, but it could be supportive of markets this year.

Likewise, global liquidity will be a tailwind for asset prices in 2026. U.S. regulators are lowering banks' SLR [supplementary leverage ratios], which will free up capital. The Federal Reserve will probably cut interest rates a couple of times, and $10 trillion of U.S. debt will mature.

This could be a topping year for the market given all the fiscal and monetary stimulus, and the AI-buildout narrative could top for a bit. But we see upside to double-digit market returns in 2026. There are a lot of good places to invest.

Christopher Rossbach: As Charlie Munger, Warren Buffett's late business partner, said, "Micro is what we do, macro is what we put up with." We have had to put up with a lot of macro. I agree with Todd on the macro. The economy still looks robust. AI is a transformational technology, given the opportunity it affords to achieve productivity gains, and we think we are at the beginning of that process. We don't yet have the computing capacity, infrastructure, or applications to fully realize its potential.

Turning to the markets, however, valuations are much fuller than they had been. We have had 10 to 15 years of solid index returns. A lot of companies aren't just fully valued, but overvalued. Stock-picking is going to matter much more than it did. The index era is basically over. There are some great companies with good growth prospects selling at reasonable valuations, and other companies, particularly in the consumer space, that could turn around. These consumer companies are the cheapest part of the market, and could offer great opportunities this year.

Every year, it seems, this group declares it a stockpicker's market. Yet stock market indexes such as the S&P 500 and Nasdaq Composite gain even more altitude and prove difficult to beat. Why will 2026 be any different?

John W. Rogers Jr.: There is more pressure to own the leading stocks in the indexes than I have ever seen. When people buy the same stocks just because they dominate the indexes, it is a sign of a market top. The Mag Seven account for 50% of the returns of the S&P 500. In the 12 months ended Sept. 30, if mid-cap growth managers didn't match the Russell Midcap Growth Index exposure to Palantir Technologies and AppLovin, it resulted in a 9% lag to the index.

I come from Chicago. The University of Chicago helped to make indexing popular. I have a lot of respect for the great thinkers such as [Vanguard founder] Jack Bogle and [economist] Burton Malkiel, who argued that indexing is the smartest investment strategy. But capitalization-weighted indexes have become concentrated today in so few stocks and industries that benchmarking investments to an index could lead to massive underperformance in the next five to 10 years. We expect that to open the door to a new period of stock-picking.

Ahlsten: S&P 500 companies, ex-the Mag Seven, are in an unbelievable position to monetize the massive investment wave in AI, widen their moats, and drive higher margins and earnings growth. They account for more than 70% of the index's expected 2026 net income, and they are undervalued. Some people think an AI selloff could lead to a market crash. I look at it another way: These companies have a massive opportunity.

Rogers: I'll add one other thing. Warren Buffett bought stocks in the Dow Jones Industrial Average when he started out in the 1960s. The Dow 30 reflected domestic industries. It was considered a great index. The S&P 500, with 500 names, was later thought to be even better. I haven't read any academic research about this, but maybe today's index isn't what it was supposed to be. Maybe it has morphed into something different than what its creators had thought. Everyone drinks the Kool-Aid and wants to own the index. But no one is doing the research to see whether equity indexes are as well constructed and relevant today as they were in the past.

Abby Cohen: I want to talk about valuations. If stocks are inexpensive, investors can deal with unpleasant news. But if they are fully priced, or pricing in a scenario that is wonderful, that is a risky situation with little margin for error.

The S&P 500, which is market-cap weighted, is trading for about 23 times forward earnings. On an equal-weight basis, it is trading for 17 times earnings. The gap is extraordinary, and speaks to the point others have raised: The opportunities from a valuation perspective aren't in the large-cap names any longer. They are in smaller-cap names.

If you take a more rigorous valuation approach based on discounted cash flow, the S&P 500 is in challenging territory. Thus, I find myself looking not only at the pleasant consensus economic and earnings forecasts, but also at what could go wrong. There is a long list in 2026.

What are your biggest concerns?

Cohen: AI-related capex has pushed up not only S&P 500 earnings but also U.S. GDP in the past couple of years. We should think about what will happen in the likely event this spending slows.

Another area of concern is private credit. A lot of money is going into this area, which has allowed companies to stay private for longer. But there is a lack of transparency regarding the quality and value of these investments.

I worry about crypto. Only a fraction of crypto-related transactions are for economic purposes. As crypto has become more widely used in the U.S., often through stablecoins, the use of margin debt has increased. Stablecoins can be backed by U.S. Treasuries but also by uninsured deposits at the issuing institution. There has also been a weakening of regulatory oversight and little international coordination.

We haven't talked about the U.S. debt situation. The federal debt has been growing, which is unusual when the economy is doing well. The Congressional Budget Office estimates that the 2025 omnibus spending bill will add $3.5 trillion to the debt over the next decade, and it isn't assuming a recession. An increase of this magnitude is disturbing.

Another potential risk relates to threats to Federal Reserve independence, which has been critical to our success as a nation and the dollar's status as a reserve currency. Lastly, for now, if the U.S. feels comfortable going into Venezuela, the Chinese may feel more comfortable going into Taiwan, which is vulnerable to naval blockades. There is also a global reliance on Taiwan's tech sector, which supplies 25% of memory chips and 45% of logic chips. Any destabilization there is a potential problem.

Most of these concerns pertained to last year, too, yet the market rose. Where do you expect stocks to end this year?

Cohen: My earnings outlook isn't as robust as Todd's, so I see a valuation for the S&P 500 in a range of 6700 to 7000. I don't see large gains for the index, but I see a rotation into stocks that haven't been winners, as Chris discussed. Some parts of the U.S. market offer good value. The U.S. consumer looks pretty solid. There are opportunities in healthcare, and diversification into international stocks makes sense. Last year I spoke about opportunities in some of the markets in East Asia. They did well because they were inexpensive and had good earnings growth. I would expect a rotation into some other markets this year. Later I will talk about India.

Sonal, what is the outlook for fixed income?

Sonal Desai: First, I want to talk about Venezuela. What happened wasn't unprecedented. The U.S. has a history of intervening in Latin America. We did it in Panama in 1989. What happens next is unclear.

Medium term, U.S. involvement should send oil prices lower. Venezuela was supplying around 800,000 barrels a day in the recent past, down from well over three million in the 1990s. I keep reading about the U.S. robbing Venezuela, but American oil companies had their Venezuela facilities expropriated in 2007. If U.S. and international companies can begin producing oil again in Venezuela, the price of crude will eventually come down. That could be negative for Canada, the other supplier of heavy crude, and the Canadian dollar. From the bond market's perspective, one implication would be the possible restructuring of PDVSA's [Petróleos de Venezuela's] debt, and Venezuela's sovereign debt.

The first several people who spoke today had little to say about Venezuela, which gets to the broader impact, or lack thereof, on markets. This particular geopolitical development is unlikely to have a substantial or lasting impact on markets.

Regarding the economy, my GDP forecast tops Todd's. I expect the U.S. economy to grow by 2.75% to 3% this year.

Ahlsten: I like that.

Desai: Consumption will be strong owing to fiscal tailwinds. Whether the deficit should have been expanded in the way it was expanded is a separate matter from the growth impact. Then, if the government sends out $2,000 tariff-rebate checks, as has been discussed, that will be substantially more even than the $1,400 helicopter drop in the first quarter of the Biden administration. The overall fiscal impulse will have a significant impact on consumption and inflation.

Second, the hyperscalers will have spent close to a trillion dollars from 2025 to 2026. That adds to the supportive growth backdrop. Third, the changing regulatory regime is important to the extent that it gets banks back into the business of lending.

Banks make money when there is an upward-sloping [Treasury] yield curve, and I expect the yield curve to steepen significantly this year. I would expect inflation to remain at the current 2.75% to 3% annual rate. The Fed shouldn't have cut rates by 25 basis points in December. [A basis point is a hundredth of a percentage point.] I don't think two more rate cuts are warranted this year. We might get one cut, but even that isn't currently called for.

I tend to be less alarmed than others about the issue of Fed independence, largely because we already have a dovish Fed. We haven't had a hawkish Fed chair since Paul Volcker. That said, further loosening [of monetary policy] would be a mistake at this point. I have said for a while that I think the neutral federal-funds rate [the rate that neither stimulates nor restricts growth] is closer to 4% than 3%. If additional rate cuts take the fed-funds rate down to 3.00% to 3.25%, we will essentially be looking at zero real rates.

That isn't a good place for an economy with productivity growth of 2.25% to 2.50% and inflation running close to 3%. The 10-year Treasury yield is higher today than it was before 1.75 percentage points of rate cuts. Clearly, the market is paying attention to inflation and the fiscal outlook. The 10-year Treasury yield could scale 4.50% this year, and approach 5% with significant further fiscal expansion.

Against this backdrop, I wouldn't be looking for major spread compression in fixed income. Emerging markets look attractive. The dollar came into last year overvalued against other currencies, and is now close to fair value against the euro. It is massively overvalued against the yen.

Scott Black: The accumulated national debt is $38.6 trillion, or 1.22 times nominal GDP. Money supply has been growing, and the Fed is no longer winding down its balance sheet. To the contrary, balance-sheet assets have been creeping up a bit. We have a $1.7 trillion fiscal deficit. The Fed is buying short-term paper. Who is going to fund long-term bonds? If the 10-year yield goes up to 4.5% to 5%, does that change the ballgame for the equity market?

Scott, you may have answered your own question.

Henry Ellenbogen: Every year there are reasons to be concerned, and this year is no different. I recently reread last year's Roundtable. Only two panelists thought the market would go up in 2025: Todd and me. I have the same concerns as the rest of you, and if the 10-year Treasury yield breaks 5%, the stock market will struggle.

We should also be concerned about the U.S. relationship with China. The issue isn't Venezuela. But if you believe the bond market and our relationship with China are under control, there are reasons to be positive about stocks.