Global equities delivered their strongest first half since 2020, gaining nearly 15% despite the Iran war. Markets enter the second half of 2026 with positive momentum, supported by:
Our Base-Case Scenario for the second half of 2026: Strong Earnings, Lower Oil Prices, and Central Banks on Hold
Our base-case scenario continues to unfold as expected. Robust investment in AI, energy transition, and defense, combined with strong corporate earnings and sharply lower oil prices, reinforces our constructive outlook for global equities.
As anticipated, Brent crude’s peak at USD 120/bbl triggered a significant and largely irreversible demand destruction of approximately 3–5 million barrels per day, creating the conditions for oil prices to move below pre-war levels within 12 months. At the same time, China and several other countries continue to reduce oil imports as part of their long-term energy independence strategies, replacing fossil fuels with nuclear, solar, and hydroelectric power.
With oil prices falling, inflation is expected to continue converging toward the 2% target across major economies. Consequently, we believe both the Federal Reserve under Chairman Kevin Warsh and the European Central Bank under President Christine Lagarde are unlikely to implement rate hikes.
Market Movers: 2026 Year to Date
Key Market Drivers for the Second Half of 2026
Key Risks
How to Take Advantage of the Positive Investment Environment?
SystematicEdge has developed a series of investment strategies that give investors a diversified, cost-efficient exposure to Equity, Fixed Income, and Commodities. Our strategies are based on three pillars:
The performance of our flagship strategies in 2025 and 2026 year to date is shown in the table and chart below.
To see the full factsheets for our strategies, please contact insights@systematicedge.com.
Global Economy: Lower Oil Prices Support Growth and Disinflation
Near-term macro uncertainty is likely to persist, even with a tentative U.S.-Iran peace agreement, as energy markets and investor risk appetite remain fragile. However, during the second half of 2026, the economic outlook should become more constructive as lower oil prices ease pressure on consumers and allow savings rates to recover. With oil inflation expected to fade and limited underlying price pressures, inflation should gradually return to a more benign path. This should reinforce expectations for lower interest rates in both the U.S. and Europe, while highlighting that the ECB’s recent rate increase was a policy error.
In the U.S.: Growth Holds at 2.7% While Inflation Gradually Eases
U.S. economic activity remained resilient in the first half of the year despite higher energy prices, with GDP tracking around 2.7%, supported by consumer spending and investment. Growth is expected to moderate in the second half as fiscal stimulus fades, while the Fed is likely to remain on hold until inflation shows clearer signs of easing, with rate cuts expected from 2027. Core CPI rose to 2.9% year over year in June and headline inflation reached 3.8% on higher energy prices, but moderating tariff effects and continued services disinflation should support a gradual decline in inflation over the coming quarters.
In Europe: Recovery Builds as Energy Risks Fade
In our base case, the impact of the Iran conflict and energy supply disruptions should continue to fade in the second half of the year, supporting confidence, German fiscal easing, and stronger activity into year-end and 2027. We expect GDP growth of 0.8% in 2026 and 1.0% in 2027. Inflation should remain near 3.0% in the coming months, but easing energy pressures, moderating wages, and productivity gains should bring inflation back toward the 2% target, allowing the ECB to stay on hold and cut rates in 2027.
In China: Export Resilience Offsets Domestic Softness
China’s growth remains strong, with exports up 15.5% YTD on AI and green energy demand. H1 GDP is tracking around 4.7%, supported by exports, but weaker domestic demand and unused fiscal capacity could lead to faster policy rollout from H2. Inflation remains contained, with CPI stable at 1.2%, reflecting limited energy pass-through.
Global Asset Outlook: Earnings Strength, Lower Oil, and Central Banks on Hold
Global equities delivered their strongest first half since 2020, gaining nearly 15% despite the Iran war, supported by resilient growth and strong earnings. Falling oil prices are helping inflation in the U.S. and Europe move closer to target, while softer labor markets make further rate hikes increasingly unlikely. Robust investment in AI, energy transition, and defense continues to reinforce our constructive equity outlook. Brent’s peak at USD 120/bbl triggered an estimated 3–5 million barrels per day of demand destruction, supporting our view that oil prices could move below pre-war levels within 12 months.
Equity: U.S. equities slipped in June, with the S&P 500 -1.1% MTD / +9.6% YTD and Nasdaq 100 -0.2% / +19.9%; VIX rose 1.1 MTD / 1.5 YTD. Europe gained, with Euro Stoxx 50 +4.6% MTD / +9.3% YTD. Japan and Korea led Asia: Nikkei 225 +5.6% MTD / +39.2% YTD; KOSPI 200 +2.1% / +126.2%. China lagged: HSCEI -10.3% MTD / -15.2% YTD and Hang Seng TECH -8.4% / -18.9%; NIFTY 50 +1.4% / -8.7%.
Fixed Income: U.S. Treasury yields ended June at 4.47%, up 3bps MTD and 30bps YTD, while German yields fell to 2.86%, down 8bps MTD and flat YTD. China’s 10-year yield was stable at 1.75%, up 1bp MTD but down 12bps YTD, highlighting continued divergence across major bond markets.
Currencies: EUR/USD closed June at 1.1421, down 2.0% MTD and 2.8% YTD, as U.S. growth continued to outperform Europe. USD/JPY rose to 162.54, up 2.1% MTD and 3.8% YTD, near a 40-year high. USD/RMB ended at 6.7908, up 0.4% MTD but down 2.6% YTD, supported by gradual RMB appreciation of about 0.5% per month. AUD/USD fell to 0.6919, down 3.7% MTD but up 3.7% YTD.
Commodities: WTI oil ended June at USD 69.50, down 20.4% MTD but still up 21.0% YTD, while gold fell to USD 4,023, down 11.8% MTD and 7.0% YTD, following a 30% correction from its January all-time high of USD 5,600/oz, driven by liquidation flows and higher bond yields. Copper closed at USD 13,652, down 2.6% MTD but up 10.0% YTD, showing more resilient industrial demand.
Crypto: Bitcoin ended June at USD 58k, down 20.3% MTD and 33.1% YTD as investor confidence in its investment thesis continues to weaken. Ethereum fell to USD 1,574, down 21.9% MTD and 47.2% YTD. Solana closed at USD 73.59, down 10.4% MTD and 40.8% YTD, highlighting the broad sell-off across major cryptocurrencies.
Global equities have reached new all-time highs and rose 15% YTD as investors look beyond the U.S.-Iran conflict and refocus on strong fundamentals, supported by declining oil prices. The macro backdrop remains constructive, with resilient consumption, robust access to capital, and supportive fiscal policies driving an expected 20% EPS growth across major global economies this year. We maintain our attractive view on equities and recommend diversified exposure across regions and sectors, while closely monitoring Strait of Hormuz flows, inflation, yields, and rising competition within technology.
In the U.S.: Strong Earnings, AI Demand, and Lower Yields, S&P 500 Up 9.6% YTD
The U.S. equity rally has broadened beyond technology, reflecting a supportive macro backdrop and reinforcing our expectation that the bull market can continue. Solid growth, a supportive Fed, and AI adoption remain the three key drivers, with S&P 500 earnings growth expected to exceed the strong 20% pace recorded in H1. Recent tech weakness appears to be a consolidation after the April–May rally, while data center capex and AI-driven cloud revenue should continue to beat expectations. We remain constructive on U.S. equities, with 10 year Treasury yields expected to move toward 4% in 1H27 and two Fed rate cuts likely in 2027, though periodic volatility should be expected.
In Europe: AI, Electrification, and Defense Support further Gains, Euro Stoxx 50 Up 9.3% YTD
European equities have been driven mainly by AI-related investment and improving U.S.-Iran developments, although market leadership remains concentrated in a small number of stocks. This narrow leadership increases downside risk if either theme reverses, but also creates room for lagging sectors to recover if energy flows through the Strait of Hormuz normalize. We continue to see upside for European equities, supported by expected earnings growth of around 25% over the next two years, though further tech gains will increasingly depend on execution rather than expectations alone.
In China: AI Leadership and Attractive Valuations, HSCEI Down 15.2% YTD
China equities remain attractive, supported by strong earnings growth, compelling valuations, and the global AI investment cycle, with our preference focused on semiconductors, tech hardware, and infrastructure. Consensus expects a 30% EPS p.a. over the next two years, while China’s integrated AI value chain, policy support, and improving monetization outlook reinforce the sector’s structural appeal. Beyond technology, we continue to favor power equipment, health care, and yield-oriented stocks, while tighter oversight of outbound investment may increasingly direct capital toward strategic, policy-aligned sectors.
Currency markets have shifted as improving prospects for a U.S.-Iran peace deal push oil prices and global yields lower, reducing rate-hike expectations across major central banks. Oil-exporter currencies such as the U.S. dollar have come under pressure, while the Chinese yuan remains supported by strong trade surpluses and policy backing. In this context, disciplined FX hedging is critical to protect capital.
EUR/USD: Down 2.8% YTD to 1.1421, reflecting continued U.S. economic outperformance relative to Europe.
The euro has been supported by the ECB’s hawkish stance, although falling oil prices make further rate hikes unlikely; meanwhile, strong U.S. data and a more hawkish Fed continue to support the dollar. We expect EUR/USD to trade in a wide 1.10–1.20 range, with near-term risks skewed toward the lower end before Fed rate-cut expectations re-emerge later in the year and push the pair toward the upper end, reinforcing the importance of active FX hedging.
USD/RMB: RMB Appreciation Has Further Room to Run
USD/RMB is down 2.6% YTD to 6.7908, as the PBoC continues to guide gradual RMB appreciation of approximately 0.5% per month amid a temporary U.S.-China truce on tariffs and currency tensions. We believe the USD/RMB downtrend has further room to continue and maintain our 6.20 target over the next 12 months.
USD/JPY: Policy Divergence Keeps USD/JPY at 40 year high at 162.54
USD/JPY is up 3.8% YTD to 162.54, near a 40-year high, as the Bank of Japan continues its cautious policy normalization. The BoJ raised rates by 25 bps to 1.0% in June, and we expect additional 25 bps hikes in December 2026 and June 2027, while U.S. labor market fragility and declining inflation have pushed out expectations for Fed rate cuts. In 2027, we expect the yen to strengthen and USD/JPY to move back toward the 140 support level.
Bank Bonds Offer Compelling Yields above 5.5% in USD
The higher-yield environment may have peaked, with the U.S. 10-year Treasury yield at 4.47% on inflation concerns we view as increasingly misplaced. The recent global bond sell-off has created an opportunity to lock in attractive yields in high-quality short- and medium-duration bonds, as markets continue to overestimate further central bank tightening. Bank bonds now offer compelling USD yields above 5.5%, with some close to 6%, near 20-year highs, supported by solid fundamentals, strong quality demand, and attractive starting yields.
Short-Term Cash Opportunity: Enhanced Cash Management (ECM) at 4.25%
A More Efficient Alternative to Bank Deposits.
The higher yield curve and wider bank credit spreads create an opportunity to generate a stable net income yield of approximately 4.25%, about 25% higher than traditional bank deposits and roughly 1.0% to 1.5% above prevailing deposit rates. ECM is designed to preserve capital while maintaining liquidity. Further details are available on the final page, “Opportunity.”
Broad commodity exposure offers diversification, inflation protection, and a hedge against supply shocks, supported by historically low correlation with equities and bonds. Although U.S.-Iran tensions are easing, restoring full flows through the Strait of Hormuz will take time, while geopolitical uncertainty and structural demand from electrification remain supportive. This view is reflected in our Geopolitical Risk Mitigation (GRM) Strategy, which includes gold, oil, and copper, three assets increasingly in demand as military and economic conflicts intensify. Further details are available on the final page, “Opportunity.”
Oil: Prices Drop sharply as Supply Routes Reopen
Oil fell 20.4% in June but remains up 21% YTD at USD 69.5/bbl, after reaching USD 120/bbl in March, as shipping through the Strait of Hormuz normalizes. Since the U.S.-Iran MoU on 14 June, Brent has dropped by around USD 40/bbl, returning to levels last seen in February. Prices have also been pressured by China’s crude imports falling from 13 mbpd in February to 7 mbpd in June, record U.S. crude and refined-product exports, OECD strategic reserve releases, and Saudi/UAE pipeline routes bypassing Hormuz.
Gold: Near-Term Pressure, Structural Support
Gold is down 7% YTD to USD 4,023/oz, following a 30% correction from its January all-time high of USD 5,600/oz, driven by liquidation flows and higher bond yields. Its safe-haven appeal has been offset by stronger U.S. data, higher real yields, a firmer dollar, and less dovish Fed expectations. While near-term consolidation may continue, central bank demand, diversification away from the U.S. dollar, and global debt concerns should remain structural supports over the next 12 months.
