- In the last strategy our view was portfolios could continue to make steady progress, supported by ongoing investment in areas such as technology, particularly in the US, and increased defence spending in Europe. We recognised strong market performance in 2025 had left some equity markets looking expensive, making the investment path narrower.
- Markets performed well through January and February, extending last year’s momentum. Conditions became more challenging in March as geopolitical tensions escalated following conflict involving the US, Israel and Iran. Disruption to oil and gas supplies through the Strait of Hormuz increased uncertainty and volatility, with early-year gains largely reversed by the end of the quarter. Once again, energy markets sit at the centre of events. Disruption in the Strait of Hormuz has reduced supply and pushed prices upward. Higher energy costs are likely to feed through into inflation and weigh on economic growth.
- Markets would settle with a contained conflict that allows oil supplies to resume over the coming months. However, the risk of escalation cannot be ignored. Further attacks on energy infrastructure, or wider regional involvement, would increase downside risks.
- Our opinion is the energy shock complicates the inflation outlook and delays interest rate cuts, but it does not fundamentally change the medium-term direction towards lower interest rates. Higher oil and gas prices are likely to push inflation up in the near term, leading markets to push back expectations for rate cuts. Our opinion is this is not a repeat of the inflation surge seen in 2022–23, which was driven by multiple overlapping factors. We do recognise though that there are risks this view will need to evolve further as events unfold.
- Our central view is that interest rates may remain higher for longer, and could even rise modestly, before eventually falling as weaker growth and softer demand reassert themselves. In this environment, maintaining flexibility and focusing on long-term fundamentals remains key to navigating portfolios through near-term uncertainty.
- Fixed income: Yields rose and credit spreads widened as markets reacted to the war in Iran and there was a meaningful adjustment to future interest rate expectations. Whilst this has been negative in the short term, it also means headline yields remain attractive for long-term investors, but the positive boost that falling yields would normally have is on hold.
- Equities: Equity market volatility returned in March as tensions in the Gulf escalated. The most affected areas were major energy importers, including Japan, much of Asia and emerging markets. More resilient were defensive parts of the market, such as infrastructure, and companies with direct exposure to energy.
- Currency: The US dollar strengthened into the end of the quarter as there was a move to safety. Meanwhile sterling was broadly flat against the euro and Japanese yen.
- Commodity: Gold and oil moved with the news headlines, with oil rising significantly given the closure of supply out of the Strait of Hormuz from $60 at the start of the year to c$105 by the end of March. Meanwhile gold fell back to $4585 in a period where it should have seen investors flock to it, hindered by rising bond yields, a stronger dollar and, one suspects, some speculators taking profits after an insatiable rise in value over a year.
Summary Q2 2026
