After one of the most turbulent quarters in recent memory, investors enter Q2 2026 navigating a landscape that has been fundamentally reshaped by geopolitical shock, policy uncertainty, and accelerating structural change.
Q1 began with considerable promise. Equity markets rose on strong earnings, enthusiasm around artificial intelligence, and expectations of Federal Reserve rate cuts. The global economy appeared on track for what we described as an "Indian summer" — a prolonged phase of steady growth and contained inflation, supported by fiscal stimulus across the US, Europe, and China. That constructive backdrop did not last. The outbreak of conflict in the Middle East, the effective closure of the Strait of Hormuz, and the sharpest oil price surge in three decades rapidly shifted the landscape, forcing investors to reassess their assumptions across every asset class.
As we look ahead to Q2, our central message is one of measured confidence. We remain long-term positive on equity markets and believe the current correction will provide attractive entry points. The war in Iran represents a temporary geopolitical shock, not a structural turning point for financial markets. The Iranian military has lost air supremacy, and its capabilities are being systematically degraded. We do not expect Iran to control the Strait of Hormuz for long and anticipate a negotiated end to the conflict within weeks — after which oil prices should start to ease.
Beyond the immediate geopolitical picture, several other developments support a constructive outlook. The US Supreme Court has struck down the administration's trade tariffs as unconstitutional, with effective tariff rates expected to fall below 10% once only legal measures under Sections 232 and 301 remain in force. This removes a significant source of uncertainty that weighed on markets through much of 2025. Meanwhile, the widely anticipated appointment of Kevin Warsh as Fed Chairman should ultimately lead to an easing of monetary policy, with lower interest rates likely to benefit investors through much of 2027.
On the political front, the US midterm elections of November 2026 carry a growing probability — now around 85% on prediction markets — of a Democratic majority in the House. History shows that a split Congress has typically been a constructive environment for financial markets, as it limits the scope for disruptive legislative action in either direction.
We are also mindful of the concerns that have emerged around private lending. However, in our assessment, non-bank credit does not pose a systemic risk comparable to the 2008 subprime mortgage crisis. The market is smaller, better underwritten, and far less leveraged. The stress we observed in software-related loans during Q1 is idiosyncratic, not systemic.
Taken together, we believe that March’s equity pullback should be seen as a correction within a long-term bull market. Investors who bought during the US tariff crisis of 2025 were rewarded handsomely. We expect the same will hold true now, and that markets will end 2026 above their current levels. We also believe that our main investment call for 2026, “the broadening”, still holds true. We recommend remaining well-diversified across sectors and regions in 2026. We see compelling value in US mid-caps, non-US international and Emerging Markets. Gold, hedge funds, and fixed income remain portfolio diversifiers.
That said, risks remain real and should not be dismissed. The duration of the Middle East conflict, the trajectory of energy prices, and the pace of central bank responses all carry the potential to shift our outlook meaningfully. As always, we stick to our SAA (Strategic Asset Allocation) and will use our TAA (Tactical Asset Allocation) opportunistically.
The sections that follow provide our detailed analysis across macro, equities, fixed income, commodities, currencies, and alternatives — each grounded in the conviction that volatility, managed wisely, can be a source of opportunity rather than merely a source of risk.
Read the full outlook in the attached PDF.