Mid-Year Investment Outlook 2026

The resilience of global equity markets has been a defining feature so far this year. Over the past six months, geopolitical tensions, ensuing energy price shocks, shifting monetary policy and changes in companies’ earnings forecasts have contributed to prolonged periods of uncertainty and heightened volatility. Equity markets started the year in a position of strength, underpinned by solid US economic fundamentals and sustained enthusiasm around Artificial Intelligence (AI). The escalation of conflict in the Middle East saw fears of prolonged disruption and broader regional escalation weigh on sentiment throughout the first quarter.

Nevertheless, a sharp acceleration in earnings growth in AI-related companies led equities to rally sharply from early April lows. Inflation has returned to the forefront of market discussions for this year. The closure of the Strait of Hormuz, through which 20% of global oil and gas supplies transit, triggered a sharp increase in prices across global energy markets. Expectations of monetary easing quickly gave way to concerns surrounding higher energy prices and their impact on inflation. The European Central Bank (ECB) initiated a 0.25% rate hike in June as headline inflation remained stuck around 3% since April, firmly above its 2% target.

Commodity markets have mirrored this higher-inflation environment. Energy led gains, lifted by Middle East disruptions and global reliance on oil imports, only to fall sharply to pre-war levels on the re-opening of the Strait of Hormuz and the announcement of a peace agreement. Industrial metals rose on AI-related infrastructure and electrification spending. Gold endured a mixed first half of the year. A rally prior to the outbreak of conflict in the Middle East did not persist, and gold posted a poor second quarter of 2026.

Equities

As ever, earnings growth has been the dominant force behind equity performance this year. Quarterly earnings reports have repeatedly come in ahead of forecasts, renewing investor confidence in AI as a long-term growth driver. While markets have seen recent bouts of tech-sector weakness as concerns grow over the level of investment outpacing monetisation, 2026 has seen a shift from mega-cap leaders to the infrastructure story underpinning the AI revolution.

Across our multi-asset portfolios, we are close to neutral positioning in equities. Our exposure remains tilted toward cyclical and growth sectors with a focus on Information Technology, Financials and Industrials. From a geographical perspective, Europe and Asia Pacific remain our favoured regions across equities. We maintain a more cautious stance in terms of our exposure to the US. As active investors, we have been able to take advantage of thematics across these markets, with the AI boom broadening the opportunity set beyond hyperscalers to those companies and regions benefiting from so-called ‘second-order effects’ of capital expenditure by the hyperscalers on AI.

As we look to the rest of 2026, our positioning reflects our belief that earnings growth will remain a supportive driver of equity markets, even as macro uncertainty persists. At the same time, inflation and subsequent interest rate expectations will be closely monitored, as a higher-for-longer policy stance may challenge investor sentiment and lead to further volatility in equity markets. However, valuation, not volatility, remains the key risk consideration.

Fixed income

While markets entered 2026 anticipating a gradual easing cycle, renewed inflation concerns and resilient economic data has seen interest rates pushing yields across all maturities broadly higher. Against this backdrop, our current positioning remains marginally overweight short-term versus medium-duration bonds. Medium-term inflation expectations remain a key consideration for us in relation to our structural view on bond markets.

Our eurozone bond portfolio reflects our view that policy rate expectations are likely to remain elevated for longer than expected, despite the fact yields have moderated from peak levels. Disruptions to global energy markets left the European Union (EU) facing a second energy crisis within just four years. This led to a policy response with the ECB’s deposit rate now sitting at 2.25%. This period saw the German 10-year Bund rise to 3.2% during May, its highest level since 2011.

In the US, June brought the prospect of a globally higher-rate regime into sharper focus following the appointment of the Federal Reserve (Fed) chair Kevin Warsh. Markets had initially anticipated a more dovish policy stance, only to reassess expectations following firmer inflation messaging and limited forward guidance. This approach under the new Fed Chair could increase volatility in related risk assets in and around Federal Reserve activity.

Commodities and currencies

Following a substantial position last year, we materially reduced our allocations to Gold in late December 2025. Following an impressive two-year rally, Gold has recorded its weakest quarterly performance in more than a decade as extended positioning, rising real yields and expectations of a more hawkish Fed have reduced investor appetite for non-yielding assets.

Oil prices surged in response to the closure of the Strait of Hormuz. While prices have retreated from their record highs, the market remains vulnerable to further bouts of volatility as the conflict has left lasting effects on energy markets.

Expectations of higher-for-longer interest rates, paired with uncertainty surrounding US tariff policy have contributed to volatility in copper markets, often considered a barometer for the health of the global economy. Looking beyond the cyclical outlook, the structural case for copper remains compelling, supported by demand from electrification, grid expansion, and AI-related infrastructure development.

In currency markets, investors have renewed their preference for the US dollar as a safe haven asset. The combination of heightened geopolitical uncertainty and the view that US interest rates will move higher has supported demand for dollar-denominated assets, pushing the key EUR/USD pair down from its 1.20 peak at the beginning of this year to 1.14 by the end of June. At this time, we continue to monitor opportunities in relation to currency hedging and may look to hedge some exposures in the near future

For more information

The Zurich Investment Outlook is produced twice yearly and the full document is available on our website. This publication provides an in-depth insight into our current thinking and positioning, and expands on the reasons behind our economic views to your clients. For more information visit zurichbroker.ie or speak to your Zurich Broker Consultant.