Every large investment firm publishes an outlook.

Most are beautifully designed collections of economic forecasts, carefully hedged predictions and charts explaining why the firm’s existing positions are almost certainly correct. They are often useful as doorstops and reasonably effective as sleep aids.

Carlyle’s 2026 midyear outlook is different.

Instead of guessing whether the S&P 500 will finish the year at 6,900, 7,200 or whatever number generates the most television appearances, Carlyle asks five questions that matter:

What does the affordability crisis mean for Federal Reserve policy?

Is artificial intelligence spending crowding out investment elsewhere?

What are Japan’s bond and currency markets telling us?

Are investors worried about the wrong credit boom?

Can Europe finally put its enormous savings pool to productive use?

Those questions identify trends that could last well beyond the next inflation report or Fed meeting. They also lead us to five stocks worth considering: WM, Eaton, Toyota, Ares Capital and Deutsche Bank.

A Brief History of Carlyle

The Carlyle Group was founded in Washington, D.C., in 1987 by William Conway Jr., Daniel D’Aniello and David Rubenstein.

The firm began as a small private investment partnership and grew into one of the world’s largest alternative asset managers, with operations across private equity, private credit, infrastructure and investment solutions.

Its Washington roots have always distinguished Carlyle from the traditional Wall Street crowd. The firm developed deep relationships across government, defense, industry and global policy circles.

That does not make Carlyle infallible. No investment firm is infallible, regardless of how many former cabinet officials attend its conferences.

It does mean Carlyle tends to examine the interaction of capital, politics and economic power rather than simply projecting next quarter’s earnings.

That perspective is useful right now.

Inflation Is a Political Problem

Carlyle’s first major point is that inflation has become more than an economic statistic. It is now a political problem.

Wall Street experiences inflation through spreadsheets and monthly government reports. If the consumer price index comes in one tenth of a percentage point below expectations, everyone celebrates and a strategist declares victory on financial television.

Actual voters experience inflation at the grocery store, the insurance office, the pharmacy counter, and the utility bill.

They do not care that the monthly rate of increase has slowed. They know prices remain dramatically higher than they were several years ago.

Carlyle estimates that consumer prices have risen about 30% cumulatively since the pandemic. Grocery prices have climbed far above the trend established during the prior decade.

That creates political consequences.

The report cites New York City’s commitment of $70 million to establish five publicly owned grocery stores. Whether that proposal succeeds is almost beside the point. Voters are becoming more receptive to price controls, public ownership, and direct government intervention.

The longer inflation remains elevated, the greater the risk that politicians interfere with markets, margins, and capital allocation.

The Federal Reserve appears to understand the danger.

Carlyle notes that the Fed’s June projections showed policymakers becoming less optimistic about core inflation. Some officials were reportedly willing to consider reversing the previous year’s 75 basis points of rate cuts.

The report makes one of the best observations I have seen this year: the definition of a monetary policy dove has changed.

At the beginning of the year, a dove wanted three or four rate cuts.

By midyear, a dove was someone willing to leave rates unchanged.

The market still wants to believe the Fed is marching toward rates below 3%. Carlyle does not believe that path is predetermined.

That leads us to the first stock.

Sticky Inflation Stock

My preferred stock for a higher-for-longer inflation environment is Waste Management (NYSE:WM).

Garbage collection is not optional. Nobody decides to store six months of household waste in the garage because interest rates are too high.

WM owns an essential, recurring business with local market density, valuable landfill assets, contractual pricing power and strong cash generation.

That is exactly what I want when labor, fuel, insurance and equipment expenses remain elevated.

The attraction is not that WM is statistically cheap. It often is not. Quality businesses rarely remain cheap after everyone recognizes the quality.

The attraction is the company’s ability to raise prices and protect margins while weaker businesses are squeezed between rising costs and reluctant customers.

This is not the stock that will make you look brilliant at a cocktail party. It is the type of business that can quietly compound while everyone else debates whether the latest CPI report is bullish.

I would prefer to buy WM during a broad market pullback rather than chase it after a strong run.

The thesis is simple: if inflation remains sticky and the Fed keeps rates elevated, own an essential business with genuine pricing power.

AI Is Consuming Almost Everything

Carlyle’s most provocative argument concerns artificial intelligence.

The firm is not saying AI is fake or about to disappear. It is asking a more important question.

Where will all the money, equipment, electricity, and skilled labor come from?

Forecasts suggest more than $5 trillion could be spent on AI-related infrastructure through 2030. Carlyle compares that amount with annual U.S. net fixed investment of approximately $950 billion.

The implication is extraordinary.

Data centers could consume virtually all net capital formation in the U.S. economy over the next several years.

Technology-related investment increased approximately 30% from the previous year while investment outside technology declined. Compute spending has climbed to its highest share of GDP in modern history.

This is where the AI story leaves the cloud and collides with the physical world.

Data centers require electricians, engineers, transformers, cooling systems, grid connections, copper, steel, semiconductors and enormous amounts of electricity.

Every transformer allocated to an AI campus is unavailable for another industrial project.

Resources are finite, even when Wall Street analysts would prefer otherwise.

AI Infrastructure Stock

My preferred stock for this trend is Eaton Corp. (NYSE:ETN).

Eaton supplies electrical equipment that allows power to be distributed, managed and protected. That puts the company directly in the path of the data-center expansion without forcing us to guess which AI model or hyperscaler eventually wins.

A data center can postpone the purchase of office furniture.

It cannot postpone the electrical infrastructure.

Carlyle notes that semiconductor manufacturers outperformed hyperscalers by 56%, reminding us that companies controlling the bottlenecks often capture more value than the companies doing the spending.

Eaton sits at one of those bottlenecks.

The company sells power-management equipment into data centers, utilities, industrial facilities, aerospace and broader electrification projects. It is not entirely dependent on AI, which matters if the current spending frenzy cools.

That risk is real.

Carlyle estimates that more than 80% of projected AI capital spending over the next several years may require external financing. Internally generated cash flow is no longer sufficient.

Debt investors may demand higher yields. Shareholders may object to dilution. Portfolio managers may decide they already own enough AI exposure through every index fund in America.

Even if growth slows, demand for electrical infrastructure should remain substantial because Eaton also benefits from grid modernization, factory automation and electrification.

The risk is valuation. Investors have discovered the story.

The thesis: do not try to identify the eventual king of AI. Own the company selling critical electrical infrastructure to every contender.

Japan Is Normalizing, Not Collapsing

The weak yen and rising Japanese government bond yields are usually treated as evidence that Japan is falling apart.

Carlyle reaches almost the opposite conclusion.

For decades, the Japanese bond market was dominated by the Bank of Japan, domestic life insurers, and pension funds. These buyers were not especially price-sensitive because deflation made even tiny nominal yields attractive.

That structure is disappearing.

During the past two years, the BOJ’s share of Japanese government bond (JGB) ownership declined by 19%. Its balance sheet contracted rapidly, while Japanese insurers and pension funds also reduced their share of JGB holdings.

More price-sensitive investors have taken their place.

That means higher yields and greater volatility, but it also means Japan’s bond market is becoming a market again rather than a government-administered storage facility.

Carlyle believes a 1% policy rate remains too low to trigger substantial repatriation of Japanese capital. Currency intervention can slow a disorderly yen decline, but it cannot create lasting strength.

The weak currency also supports exporters, corporate profits and business investment. AI-related exports were up 43% from the prior year, while corporate sentiment reached an eight-year high.

Japan Stock

My stock for this trend is Toyota Motor Corp. (NYSE:TM).

Toyota is one of the world’s dominant manufacturers, with production and sales spread across Japan, North America, Europe, and Asia. A weak yen supports export competitiveness and increases the translated value of overseas earnings.

Toyota also looks increasingly intelligent for refusing to join the industry’s rush to declare that battery electric vehicles would replace every other form of transportation by next Thursday.

The company maintained a diversified strategy that includes hybrids, plug-in hybrids, battery electric vehicles, hydrogen technology, and conventional engines.

That approach looked hopelessly old-fashioned to the Internet Experts a few years ago.

It now looks suspiciously like common sense.

Toyota also provides exposure to Japan’s corporate reforms. Companies are under increasing pressure to improve returns on capital, unwind cross-shareholdings, raise dividends, and repurchase stock.

The risks are obvious. Automobiles are cyclical. Tariffs, regulation, labor expenses, and currency swings can overwhelm good execution.

Still, Toyota offers global scale, manufacturing strength, and direct exposure to Japan’s normalization.

The thesis: if Japan is improving rather than collapsing, own a globally dominant exporter that benefits from a competitive currency and better capital discipline.

Investors May Be Watching the Wrong Credit Boom

Private credit has become one of Wall Street’s favorite villains.

Every few weeks, another strategist announces that private credit is the next subprime mortgage crisis. Most of these declarations contain more drama than analysis.

Carlyle argues that critics are watching the wrong credit boom.

Private credit loans are generally financed with long-term debt and permanent equity capital. The assets are illiquid, but the liabilities are usually structured so investors cannot demand all their money back tomorrow morning.

Financial crises occur when short-term liabilities finance long-term assets and lenders suddenly refuse to roll the funding.

Carlyle believes the greater vulnerability lies in short-term leverage supporting public markets.

FINRA margin debt reached $1.42 trillion in May, up 54% from a year earlier. Hedge funds also had enormous leverage supplied through prime brokers.

Hedge funds have become major Treasury buyers, financing more than $2 trillion of Treasury positions through overnight repurchase agreements and relatively small amounts of equity.

Think about that structure.

Long-duration Treasury positions are being financed overnight.

Nothing could possibly go wrong.

Except, of course, that it already has.

Private Credit Stock

My stock for this trend is Ares Capital (NASDAQ:ARCC).

ARCC is the largest publicly traded business development company and benefits from its relationship with Ares Management (NYSE:ARES), one of the world’s most experienced private-credit organizations.

That affiliation provides broad deal sourcing, deep industry knowledge, restructuring expertise and access to capital.

There will be bad loans. There will be defaults. Some private-credit managers will discover that their underwriting standards were not as rigorous as the marketing department claimed.

Credit losses, however, are not the same thing as systemic fragility.

A permanent-capital vehicle can absorb losses over time. It does not have to liquidate its portfolio because investors demand immediate redemption.

That is why I prefer BDCs affiliated with large, experienced platforms.

ARCC offers substantial current income and exposure to the continued migration of corporate lending away from traditional banks. The dividend should be viewed as a major part of the expected return. This is not a stock we buy because we expect it to triple by Christmas.

The risk is credit deterioration. Dividend coverage and nonaccruals must be watched closely.

The thesis: if private credit proves more durable than the headlines suggest, own the largest BDC affiliated with one of the strongest credit platforms.

Europe May Finally Put Its Savings to Work

Europe has spent years diagnosing its economic problems.

The continent has too little investment, too much bureaucracy, fragmented capital markets, weak productivity, and too few globally competitive technology companies.

Europe has produced enough reports on these problems to heat Brussels for an entire winter.

Carlyle believes something may finally be changing.

In May, the six largest EU economies reached an agreement concerning capital-market integration. The E6 framework could allow the largest member states to move forward without waiting for a complete rewrite of EU treaties.

Europe’s problem is not a lack of savings.

It is what happens to those savings.

European households hold about four times as much of their wealth in bank deposits as American households. Carlyle estimates that capital-market harmonization could redirect as much as €8 trillion toward more productive investments.

Europe needs deeper stock markets, asset management, private equity, private credit and cross-border financing.

European Reform Stock

My stock for this trend is Deutsche Bank.

Deutsche Bank (NYSE:DB) is not the cleanest or most elegant European financial institution.

That is part of the attraction.

The bank spent years as the financial equivalent of a house where every time management repaired the roof, someone discovered the basement was flooding.

The business is healthier today.

Deutsche Bank offers exposure to corporate banking, investment banking, fixed-income and currency trading, securities issuance, wealth management, and asset management through DWS.

If Europe redirects household savings from deposits toward securities and productive business investment, Deutsche Bank should participate at several points in the process.

I prefer it over a traditional domestic lender because Carlyle’s thesis is not merely that European loan growth improves. It is that Europe becomes less dependent on bank balance sheets and develops deeper capital markets.

The risks include political paralysis, regulation, and Europe’s impressive ability to turn a straightforward proposal into a decade-long negotiation involving 14 committees.

That execution risk is one reason the opportunity exists.

The thesis: if Europe finally puts its savings pool to work, Deutsche Bank should benefit from more issuance, trading, financing and asset-management activity.

The Final Lineup

Carlyle’s outlook gives us a useful road map.

WM provides pricing power and essential demand in a sticky-inflation environment.

Eaton owns critical infrastructure required for the AI buildout.

Toyota provides exposure to Japan’s corporate normalization and competitive currency.

Ares Capital offers high current income and access to a durable private-credit platform.

Deutsche Bank provides operating leverage to European capital-market reform.

I would not buy all five without regard to price.

WM and Eaton can become expensive. Toyota carries cyclical and currency risk. ARCC must be monitored for credit deterioration and dividend coverage. Deutsche Bank remains a European investment bank, which means unpleasant surprises are not prohibited by corporate policy.

The important point is that each company is connected to a real economic trend rather than a one-quarter earnings guess.

That is how I prefer to invest.

Identify where capital is flowing.

Find the bottlenecks.

Determine who has pricing power.

Avoid businesses dependent on friendly capital markets for survival.

Buy when the valuation provides a margin of safety.

Wall Street can spend the rest of the year guessing what the Fed will say at its next press conference.

We will concentrate on owning businesses positioned to make money regardless of which adjective the chairman uses.