Allocation Views Looking Through the Energy Cost Shock

Franklin Templeton takes a constructive 'risk-on' view for May 2026, upgrading US and EM equities as geopolitical tensions ease and earnings expectations remain robust.

Key Takeaways

• 1.The firm adopts a 'risk-on' stance, upgrading equities due to waning Middle East hostilities and strong corporate earnings.
• 2.Emerging Markets are expected to see a 34% EPS growth, driven by AI capital expenditure in Asian semiconductors.
• 3.Preference for international bonds over US duration as the Fed is expected to remain on hold while other central banks recalibrate.

Table of Contents

• Summary
• Macro themes
• Portfolio positioning themes
• A mixed macro picture
• Divergent Data
• Labor Market Resilience
• Robust earnings expectations
• Sentiment and valuations
• Internationalizing duration
• Hawkish Policy Pivot
• Allocation settings views—May 2026

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