Key market trends shaping investor portfolios

Global markets continued to navigate a complex environment throughout July and into early August 2026. Interest rate uncertainty, renewed geopolitical tensions in the Middle East, and ongoing developments in artificial intelligence (AI) have all influenced market performance across equities, bonds, commodities, and currencies.

Three key themes driving markets

According to Ian Slattery, three major developments have shaped market performance in recent weeks:

1. Changing expectations around interest rates and central bank policy, particularly in the United States.
2. Renewed conflict in the Middle East, impacting commodity markets, especially oil.
3. Increased volatility within technology stocks, particularly semiconductor and chip manufacturers linked to the AI investment boom.

These factors have created both opportunities and challenges across different asset classes.

Equities remain resilient

Despite ongoing uncertainty, equity markets have delivered broadly positive returns.

Energy leads sector performance

All 11 sectors within the global equity market posted positive performance year-to-date, with the energy sector emerging as the strongest performer. Higher oil prices, driven largely by concerns over supply disruptions linked to geopolitical tensions, have boosted energy-related companies.

Technology has also continued to perform strongly. While not leading the market this year, the information technology sector remains one of the best-performing areas globally and continues to benefit from long-term investment in AI and digital infrastructure.

Global markets edge ahead of the US

From a regional perspective, global equity markets have slightly overtaken the US market after the US had led returns for much of the year.

This shift has been supported by stronger performance in markets such as Japan and Australia. Overall, however, the picture remains positive across most major geographic regions.

Bond markets face interest rate headwinds

While equities have recovered strongly, bonds have experienced a more challenging environment.

Central banks remain focused on balancing inflation control with economic growth. After a prolonged period of rate increases followed by stability, some policymakers have started to signal the possibility of further rate rises.

The European Central Bank recently raised rates to 2.25%, and markets are considering the possibility of additional increases later this year.

Higher interest rate expectations typically weigh on bond prices, and that has been evident throughout 2026. Although bond investors continue to receive coupon income, capital values have come under pressure as markets reassess future inflation and interest rate expectations.

Commodities continue to experience volatility

Gold remains an important portfolio diversifier

Precious metals have shown mixed performance this year.

Gold has delivered positive returns year-to-date, although performance has moderated following exceptionally strong gains in 2024 and 2025. Zurich Life's investment team has increased allocations to gold in certain portfolios during July, viewing current levels as an attractive entry point.

However, gold can struggle during periods of rising interest rates because it does not generate an income stream like bonds or cash investments.

Oil prices reflect geopolitical risks

Oil markets have been particularly volatile.

Supply concerns linked to tensions involving Iran and broader developments in the Middle East have led to sharp price movements throughout the year. Market sentiment has shifted frequently in response to changing news flow, creating significant ups and downs for investors.

Currency markets react to rate expectations

Currency movements have also reflected changing investor expectations.

The US dollar strengthened for much of July before weakening toward the end of the month. The primary driver was changing expectations around US interest rates.

For euro-based investors, movements in the euro-dollar exchange rate are especially important because many global investments and commodities are priced in US dollars. As a result, currency trends can have a meaningful impact on portfolio returns.

What investors should watch next

The Zurich investment team is currently monitoring three key indicators that could influence future asset allocation decisions.

1. Corporate Earnings

Rising earnings expectations have been one of the main reasons for strong equity performance this year. Continued earnings growth would provide further support for stock markets, while any slowdown could create challenges for valuations.

2. US Employment Data

US non-farm payroll figures remain a critical indicator of economic health.

Recent employment data has shown signs of weakening, making labour market trends an important consideration for the US Federal Reserve as it balances inflation control with employment objectives.

3. The AI Investment Cycle

Artificial intelligence continues to attract substantial investment from some of the world's largest companies.

Billions of dollars are being committed to AI infrastructure and development. However, investors will increasingly focus on whether these investments can generate meaningful revenue growth and improved returns for shareholders over time.

Conclusion

Markets remain supported by strong corporate earnings and generally positive equity performance, but investors continue to face a complex backdrop of evolving interest rate expectations, geopolitical uncertainty, and rapid technological change.

While these developments introduce risks, they also create new investment opportunities. Maintaining a diversified, actively managed portfolio remains an important strategy for navigating changing market conditions and identifying areas of long-term growth.