2026: First-Half Review
As we progress through the half-way point of the year, geopolitics and technology have continued to dominate overall market movements. War in the Middle East has begun to de-escalate and Brent crude prices started to fall after peaking at USD 120 per barrel in April.
Since the beginning of the war in Iran on 28 February 2026, estimates for 2026 earnings growth for global equities were revised up by 11 percentage points with the conflict in the Middle East seemingly not shaking global investor confidence.
In the US:
The S&P 500 first quarter 2026 earnings season was the strongest in recent years: 85% of companies beat consensus expectations, the most since 2021 and well above the long-term average of 73%. The AI build-out is supporting earnings growth across sectors. Banks are benefiting from AI-driven capital markets activity, and demand for electrical equipment is boosting industrials. US equities gained 15% over the quarter.
Currently, there is little evidence that higher inflation is feeding through to higher wages. Despite a relatively tight labor market with an unemployment rate of 4.3% and healthy private payroll growth, average hourly earnings for all workers rose just 3.5% in May, the second-smallest gain in five years. Not surprisingly, the Fed held interest rates at 3.50%–3.75%, but both the statement and press conference skewed hawkish.
In Europe and the UK:
Equities rallied on de-escalation in the Middle East and resilient economic sentiment. Consumer confidence recovered from April lows while the eurozone manufacturing purchasing managers’ index (PMI) remained above 50, in expansionary territory, through last quarter. In the second quarter, the MSCI Europe ex-UK returned 14%. The European Central Bank (ECB) delivered its first rate hike after an 11-month pause, bringing the deposit rate to 2.25% and headline eurozone CPI increased to 3.2% in May, while core CPI increased modestly to 2.5%.
UK equities gained 5% but lagged other regions over the period due to relatively large exposure to the commodity downturn and the more defensive sector composition of the index. The latest CPI print at 2.8% came in lower than consensus estimates of 3.0% and core inflation fell from 3.1% year-over-year (yoy) to 2.6% in the quarter, reducing the probability of near-term rate hikes from the Bank of England. Sterling markets took UK prime minister Sir Keir Starmer’s resignation largely in their stride, with Andy Burnham the most likely candidate to take over in July.
In Asia:
Emerging markets equities skyrocketed 24%, marking the best quarterly gain since the second quarter of 2009. Key performance contributors were Korea (+88%) and Taiwan (+49%), driven by strong investor demand for electrical equipment companies and semiconductors. Index heavyweights SK Hynix and Samsung Electronics tripled and doubled in value, respectively, propelling Korean equities.
The MSCI China index underperformed due to retail and auto sector weakness.
A fundamentally cheap currency and a further steepening of the yield curve provided a tailwind for Japanese exporters and the financial sector. The TOPIX gained 14% over the last three months. Strong wage growth momentum, with monthly cash earnings up 3.6% yoy, and a 6.3% yoy jump in producer prices are keeping the BoJ’s policy bias hawkish through 2026.
In Commodities:
Commodities faced a stiff headwind over the last three months. Oil prices fell by 38% as the war in Iran de-escalated and a memorandum of understanding signed between the US and Iran was expected to lead to a reopening of the Strait of Hormuz, easing the supply disruption in energy markets. Gold and precious metals fell more than 10% as the currency debasement trade lost further momentum.
Reviewing Some Principles of Successful Investing
Throughout our conversations with clients, we often find that the same questions arise time and time again, particularly at similar points in the market cycle. These questions usually begin to arise just as much during market euphoria as they do during market uncertainty.
As such, we've prepared a brief list of some important investing principles to address these questions.
Plan on Living a Longer Life
Thanks to advances in medicine and healthier lifestyles, people are living longer lives. The
probability of reaching the age of 80 or 90 for someone who is 65 today continues to increase.
For men, aged 65, the probability of living to age 80 is now 66% and to age 90 is now 23%. Compare this with 2005, where the probability was 58% and 16% respectively.
For women, aged 65, the probability of living to age 80 is now 76% and to age 90 is now 34%. Compare this with 2005, where the probability was 71% and 25% respectively.
These improvements in longevity have important implications for retirement planning. The longer you live, the more income you will need, the greater the impact of inflation on your purchasing power, and the longer your investments must continue to support your lifestyle. Healthcare and long-term care costs may also become more significant in later life. Planning for longevity helps reduce the risk of outliving your savings and provides greater financial security and peace of mind throughout retirement.
Cash is King...or is It?
Investors often think of cash as a safe haven in volatile times. Yet a risk-averse saver who decides to hide their cash under the mattress will find that inflation reduces the real value of that cash over time.
If money is not invested, the purchasing power, or amount of goods that money can buy, will decrease by more than half over a 40-year time horizon if inflation is 2% per year. If inflation is 3% per year, the situation will be even tougher.
Keep an emergency fund of 3-6 months' expenses, pay off high interest debt, and aim to set aside 15-20% of your monthly income into an interest bearing strategy. Spend what's left after saving, don't save what's left after spending.
Volatility is Normal
Every year has its rough patches, and this year is certainly no different. It is hard to predict market pullbacks, but double-digit declines in markets are a fact of life in most years; investors should expect them.
Volatility in financial markets is normal and investors should be prepared upfront for the ups and downs of investing, rather than reacting emotionally when the going gets tough. While markets can always have a bad day, week, month or even a bad year, history suggests investors are much less likely to suffer losses over longer periods. It’s important to keep a long-term perspective.
Selling after the market has experienced a large fall is normally the wrong strategy. However, resisting the urge to panic following a market decline can be difficult. People tend to sell after equities have already fallen. Doing so means locking in your losses and missing out on any potential recovery.