The Divergence Conundrum: Mid-Year Outlook for 2026 (Kohlberg Kravis Roberts)

Summary

• KKR expects U.S. real GDP growth of 2.4% in 2026 and 2.2% in 2027, versus consensus of 2.1% and 2.0%.p.15
• KKR forecasts U.S. CPI for 2026 at 3.6%, compared to a consensus view of 3.3%.p.8
• KKR now expects the Fed to stay on hold through 2026 and deliver just one cut in 2027, bringing fed funds to 3.375%.p.15
• Tech capex accounted for more than 100% of U.S. GDP growth in the first quarter, while the old economy of goods capex and trade contracted.p.10
• Total issuance of around $1.53 trillion against a $32.9 trillion U.S. nominal GDP baseline equates to 4.7% of GDP.p.13
• Cybersecurity spending is projected to exceed $200 billion in 2026.p.24
• Only 40% of the world's top 30 central banks will still be cutting rates, down from 60% at the end of 2025.p.9

Key insights

1. KKR calls the environment the 'Divergence Conundrum', an investing landscape where certain segments of the economy and markets are starved for capital while others are flush with attractive financing options.p.3
2. KKR's message is to stay up in quality, diversify into assets linked to nominal GDP, and own more operational improvement stories in private markets, especially Private Equity.p.4
3. Since February 2020 the bottom 40% income cohort has experienced nearly 65 basis points more cumulative inflation than the overall rate, while the top 20% has experienced nearly 75 basis points less.p.7
4. KKR argues that services, not goods, are driving productivity gains this cycle, and that the AI portion of the productivity cycle is still in its early stages.p.11
5. S&P 500 real revenue per worker is up 8%, which KKR cites as evidence of a services-driven productivity boom.p.12
6. KKR says it feels less good about the equity supply and demand setup than a year ago, even as credit technicals remain more supportive.p.13
7. Defense and power are the two areas KKR sees as the most likely long-term winners of the focus on security and resiliency of supply chains.p.9
8. The CHIPS Act and allied programs have mobilized more than $300 billion of committed fabrication investment across the U.S., Europe, Japan, and Korea.p.24
9. KKR flags valuations of trophy private sector investments as a watchout if IPOs turn out to be disappointing at a time when productivity slows.p.19