Global Equities Remain Resilient Amid Middle East Disruption
Global equities extended their gains over the past month, reaching 13% YTD, supported by a robust earnings season, accelerating AI adoption, and reduced concerns about a sustained Fed hiking cycle.
We continue to recommend well-diversified exposure across regions, sectors, and asset classes. Key risks to monitor include uncertainty around the reopening of the Strait of Hormuz, rising inflation and bond yields, and intensifying competition within the technology sector.
Our Base Case for the Remainder of 2026: Strong Earnings, Rising Geopolitical Risks, and Monetary Policy Uncertainty
The macro backdrop remains constructive, supported by fiscal policy and healthy access to capital. Structural trends should provide additional tailwinds as capital expenditures increase and monetization accelerates.
Market Movers: 2026 Year to Date
Key Market Drivers for the Remainder of 2026
Key Risks
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 Asset Outlook: Broad-Based Gains Across Asset Classes
Equity markets extended their rally in August, driven by strong gains in U.S. technology stocks and robust performance across Asia, particularly in Korea and Japan, while China and India lagged. Bond yields rose in the U.S. and Europe but declined in China. Currency markets saw broad U.S. dollar strength against the yen, while commodity-linked currencies outperformed. Commodities remained firm, led by gold, copper and oil. Cryptocurrencies rebounded sharply during the month, although Bitcoin, Ether and Solana all remained in negative territory on a year-to-date basis.
Equity: Global equities advanced in August, led by the Nasdaq 100 (+4.2% MTD, +16.7% YTD) and S&P 500 (+2.6% MTD, +12.3% YTD), reflecting continued strength in U.S. technology stocks. Asian markets outperformed overall, with the KOSPI 200 (+2.4% MTD, +76.9% YTD) and Nikkei 225 (+3.0% MTD, +31.7% YTD) delivering exceptional gains. European equities remained constructive, as the Euro Stoxx 50 rose 1.0% MTD and 10.9% YTD. In contrast, Greater China and India lagged, with the Hang Seng TECH (-4.3% MTD, -16.2% YTD), HSCEI (-1.1% MTD, -4.5% YTD) and NIFTY 50 (-1.2% MTD, -7.8% YTD) posting weaker performance.
Fixed Income: Government bond yields moved higher across developed markets, with the 10-year U.S. Treasury at 4.76% (+2bps MTD, +58bps YTD) and the 10-year German Bund at 3.34% (+11bps MTD, +48bps YTD). China diverged, with the 10-year Chinese government bond yield at 1.71% (-1bp MTD, -15bps YTD), reflecting a softer domestic rate environment.
Currencies: The U.S. dollar strengthened against the yen, with USD/JPY at 159.73 (+1.4% MTD, +2.0% YTD), while the euro traded at 1.1616 against the dollar (+0.8% MTD, -1.1% YTD). Commodity-linked currencies outperformed, with AUD/USD at 0.7166 (+2.1% MTD, +7.4% YTD), while USD/RMB fell to 6.7178 (-0.5% MTD, -3.7% YTD).
Commodities: Commodity markets remained firm, led by gold at 4,431 (+9.4% MTD, +2.4% YTD), supported by strong investor demand. Industrial and energy commodities also advanced, with copper at 14,536 (+2.4% MTD, +17.1% YTD) and WTI crude oil at 85.76 (+1.3% MTD, +49.4% YTD).
Crypto: Cryptocurrencies staged a sharp August rebound, with Bitcoin rising 25.4% MTD to 78,865, though it remained down 10.1% YTD. Altcoins outperformed, as Solana surged 42.2% MTD to 103.70 and Ether gained 32.9% MTD to 2,472.91, yet both continued to show negative YTD returns.
Global equities reached +13% YTD, supported by strong earnings, AI investment, and reduced Fed tightening concerns. The macro backdrop remains constructive, with improving manufacturing activity and supportive fiscal policy. Investment in AI, energy, natural resources, and defense should support earnings growth of around 20%. Valuations remain broadly reasonable, with excess concentrated mainly in U.S. AI stocks. Key risks include Middle East tensions, inflation, higher bond yields, and intensifying technology competition.
In the U.S.: Equities Supported by Growth and AI, S&P 500 Up 11.5% YTD
U.S. equities continue to rise despite volatility from AI, rates, energy prices, and geopolitics. Economic growth remains resilient, supported by improving manufacturing, consumer spending, and a healthy labor market. The bull market remains supported by resilient growth, monetary policy, and accelerating AI adoption. Strong cloud demand and AI investment reinforce expectations for continued AI-related capital spending through 2027.
In Europe: Earnings Recovery Broadens, Euro Stoxx 50 Up 9% YTD
European earnings are growing around 20% year over year, or 10% excluding energy, supported by improving revenues and disciplined costs. Growth is broadening across sectors, led by financials, industrials, and technology, while previously weak sectors are returning to growth. Improving manufacturing activity, fading currency headwinds, and rising AI, electrification, and defense investment should support earnings into 2027. We expect 15% earnings growth in 2027, supporting further upside for European equities, particularly the Eurozone.
In China: Equities stabilize, HSCEI Down 6% YTD
China equities stabilized after the July correction, supported by improving sentiment and favorable liquidity conditions. The outlook remains attractive, driven by strong earnings growth, compelling valuations, and the global AI investment cycle. Consensus expects around 30% annualized EPS growth over the next two years, with semiconductors, tech hardware, and infrastructure well positioned. Beyond technology, we expect power equipment, health care, and yield-oriented stocks to perform, supported by policy priorities and domestic capital flows.
FX Market Outlook: Monetary Policy and Geopolitical Uncertainty
FX markets remain sensitive to the shift from expected Fed easing toward potential tightening by 25bp up to 3.75%-4.00% this Wednesday September 16th and developments in the U.S.-Iran conflict. Pro-growth currencies, particularly the RMB, should benefit from strong trade surpluses and policy support, while tighter Fed policy and renewed energy disruptions remain key risks. In this environment, disciplined FX hedging remains essential to protect capital.
EUR/USD: Up 0.8% in August to 1.1616, but Still Down 1% YTD
Sticky U.S. inflation and further Fed rate hikes, potentially this Wednesday September 16th, could support the U.S. dollar, while geopolitical escalation would reinforce its defensive appeal. Conversely, European fiscal stimulus, potential additional ECB rate hikes and stabilizing oil prices in 2027 should support the euro. Our 12-month base case is for EUR/USD to move gradually toward 1.20, with 1.10 representing the downside scenario if the conflict remains prolonged and energy prices rise. Given this asymmetric 1.10–1.20 outlook and competing FX drivers, active hedging remains essential.
USD/RMB: Down 0.5% in August and 3.7% YTD to 6.7180, as the Renminbi Continued to Appreciate Against the U.S. Dollar.
We expect the downtrend to continue toward 6.20 within the next 12 months, supported by gradual PBoC-guided RMB appreciation of about 0.5% per month amid a temporary U.S.-China truce on tariffs and strong export-driven capital flows. China’s average USD 100bn monthly trade surplus continues to generate sustained USD-to-RMB conversion demand. The main risk is a stronger-for-longer U.S. dollar driven by a more hawkish Fed. Given this uncertainty, active FX hedging remains essential for businesses with cross-border exposure to China.
USD/JPY: Down 2.0% YTD to 153.55 as BoJ is Widely Expected to Hike Interest Rates
USD/JPY weakened past 154, retreating from near 40-year highs, as the BoJ is widely expected to hike its benchmark interest rate by 25 basis points to 1.25% at its upcoming policy meeting on Thursday, September 17, 2026. Meanwhile, data showed that Japanese producer inflation climbed 7.6% in August, reinforcing expectations for a BoJ rate increase this month. Consequently, the yen has strengthened more than 3% so far this month, supported by expectations for more aggressive BoJ policy tightening, the unwinding of carry trades, and increased capital repatriation.
Bank Bonds Offer Compelling USD Yields near 5.75%
Long-term yields are driven not only by monetary policy, but also by inflation, debt sustainability, and investor demand. While AI investment may be inflationary in the short term, over time it could boost productivity and growth, ease debt burdens, and generate deflationary pressures, potentially supporting lower interest rates. With the benchmark U.S. 10-year Treasury yield at 5%, a 20-year high, current levels offer an attractive opportunity to lock in yields. High-quality bank bonds now yield around 5.75% in USD, with some approaching 6%, offering compelling income opportunities near 20-year highs and supported by strong fundamentals.
Short-Term Cash Opportunity: Enhanced Cash Management (ECM) at 4.70%
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 4.70%, 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 in the “Opportunities” section.
Broad commodity exposure provides portfolio diversification, inflation protection, and a hedge against supply disruptions, supported by historically low correlations with equities and bonds. While U.S.-Iran tensions may ease in 2027, restoring full flows through the Strait of Hormuz could take time, while geopolitical uncertainty and structural demand from electrification remain supportive.
Our Geopolitical Risk Mitigation (GRM) strategy reflects this outlook through exposure to gold, oil, and copper, three assets increasingly in demand amid rising geopolitical and economic tensions. Further details are available in the “Opportunities” section.
Oil: Brent Is Up 100% YTD at USD 105/bbl, after Peaking at USD 120/bbl in March.
Brent prices rose 15% in September but remain below their March peak. Against the backdrop of a tightening market, persistent supply risks, and reduced inventory buffers, Brent crude may trade above USD 100/bbl until a truce agreement is reached between the U.S. and Iran, hopefully in 2027 or earlier. In the near term, we believe price risks remain skewed to the upside.
Gold: Rebounded, Gaining 9.4% in August to USD 4,430/oz, Bringing its YTD Performance Back to Flat
Gold is nearly flat YTD after a 25% correction from its January record high of USD 5,600/oz. Strong U.S. employment data and rising expectations for Fed rate hikes have pressured prices through higher real yields and a stronger U.S. dollar. However, robust investment and central bank demand, persistent inflation, and continued uncertainty provide structural support. We continue to view gold as a strategic portfolio diversifier rather than a tactical trade on current geopolitical developments.
