An in-depth look at the latest economic and market developments

Issue | Second Quarter 2026

April began under the shadow of an acute energy shock. The escalation in the Middle East and the disruption to shipping through the Strait of Hormuz had pushed Brent crude above $100 a barrel, reviving inflation fears and bringing stagflation risks back into the market conversation. The defining development of the month was the announcement of a US–Iran ceasefire, which became the catalyst for a sharp reversal in risk appetite. Although the ceasefire remained fragile and the geopolitical backdrop far from resolved, it was enough to trigger a powerful relief rally across equities. Oil prices initially retreated from their peaks, volatility began to ease, and investors moved back into risk assets after weeks of defensive positioning. The S&P 500 posted one of its strongest monthly advances since 2020, while the Nasdaq led the recovery, supported by renewed confidence in technology and AI-linked companies. Still, the relief was not complete: inflation remained elevated, long-dated yields stayed relatively high, and central banks gave little indication that rate cuts were imminent.

May extended April’s recovery, with equity markets pressing further into record territory and technology again at the center of the advance. What had begun as a relief rally increasingly looked more durable, as first-quarter earnings came in ahead of expectations and several mega-cap technology firms reaffirmed significant AI-related capital expenditure plans. Yet beneath the surface, the tension between growth and inflation became more pronounced. The April energy shock continued to feed into consumer prices, keeping inflation concerns alive and forcing markets to reassess the policy outlook. Long-dated bond yields moved higher, with the 30-year Treasury yield reaching its highest level since 2007 before later easing as oil prices softened. May also brought a major change in Federal Reserve leadership, as Kevin Warsh took over as Chair with the federal funds rate at 3.50%–3.75%. He inherited a difficult policy mix: economic activity remained firm, financial conditions had improved, but inflation was still running above target. Equity markets were able to absorb the higher-rate backdrop thanks to strong earnings momentum, but fixed income struggled, with broad bond indices pressured by rising real yields, fiscal concerns and a growing debate over whether policy would need to remain restrictive for longer.

June closed the quarter with markets still near record highs, but with the inflation and policy debate unresolved. The US May CPI report showed headline inflation at 4.2% year over year and core inflation at 2.9%, confirming that the energy shock had passed through to consumer prices while underlying inflation stayed less extreme. The decisive policy event was Kevin Warsh’s first FOMC meeting as Chair: the Fed held the target range at 3.50%–3.75%, but its projections shifted away from the earlier expectation of a 2026 cut in favor of a possible hike, and Warsh stripped the statement of forward guidance. Equities fell on the day as short-term yields and the dollar rose. The fragile US–Iran ceasefire allowed shipping through the Strait of Hormuz to recover and sent oil well below its Q2 peak, although renewed attacks late in the month underscored that the truce remained unstable rather than durable. June was also a landmark month for new listings, as SpaceX completed the largest IPO in history, surging on its debut before reversing sharply, and both Anthropic and OpenAI filed confidentially to go public. A late selloff in technology and semiconductors, alongside a retreat in gold, briefly unsettled markets, yet equities recovered into quarter-end, with the Nasdaq posting its strongest quarter since 2020.

Below is a brief summary of allocation views for the coming months from some of our key partners.

United States Equities
Views remain constructive but selective. BlackRock and J.P. Morgan continue to favor US equities, supported by resilient earnings and the AI investment cycle. Franklin Templeton sees opportunities broadening beyond mega-cap technology, including small- and mid-cap stocks, while AllianceBernstein emphasizes quality companies with strong profitability and balance sheets. PIMCO is more cautious, arguing that valuations are demanding and that high-quality bonds offer better risk-adjusted opportunities. Overall, the US remains attractive, but selectivity and valuation discipline are increasingly important.

Emerging Markets Equities
Emerging market equities are viewed positively, though with a strong emphasis on country and sector selection. J.P. Morgan and AllianceBernstein highlight attractive valuations, improving earnings and cheaper access to long-term AI beneficiaries in Asia. Franklin Templeton remains constructive on EM opportunities. BlackRock, by contrast, downgraded broad EM equities to neutral in late June on AI-concentration risks—particularly in Taiwan and South Korea—favoring selected exposures rather than a broad overweight. The main appeal is valuation and earnings resilience, but currency, policy and geopolitical risks remain key, and the same AI exposure that attracts some managers is precisely what gives BlackRock pause.

Europe Equities
Sentiment toward Europe has improved as investors look for diversification away from concentrated US technology exposure. BlackRock sees selected opportunities outside the US, including European defense-related exposure, and treats the region as a useful counterweight to US tech concentration. Franklin Templeton also sees European equities among the areas that could benefit from a broadening of global returns in 2026. J.P. Morgan focuses on European banks and broader euro-area equities, citing reasonable valuations, improving earnings revisions and a more supportive backdrop as energy prices stabilize. AllianceBernstein is more measured, treating Europe mainly as a diversifier and noting the ECB may still have room to ease. The region is not without macro challenges, but the recurring case is value, diversification and exposure to a different earnings cycle.

Gold
Gold’s role remains debated. J.P. Morgan remains structurally positive, supported by central-bank demand, reserve diversification and long-term inflation uncertainty. BlackRock is more cautious, arguing that gold may not always provide reliable protection when geopolitical shocks are accompanied by higher real yields and a stronger dollar. The disagreement is not about long-term demand, but about how dependable gold is as portfolio insurance.

US Sovereign Debt
Views on US government bonds are divided. PIMCO, AllianceBernstein and J.P. Morgan see value in today’s higher starting yields, particularly in high-quality bonds and shorter-to-intermediate maturities. BlackRock is more cautious on long-dated Treasuries, citing fiscal pressure, elevated debt levels and persistent inflation risk. The key debate is whether investors are being adequately compensated for duration risk, especially at the long end of the curve.

US Credit
Managers remain cautious on US credit, as spreads are tight by historical standards. AllianceBernstein favors higher-quality credit, particularly the BBB/BB crossover area, while PIMCO argues that credit spreads across public and private markets remain near the tight end of historical ranges, making selectivity and liquidity discipline essential. Franklin Templeton also notes that credit spreads leave limited room for disappointment. The common message is to prioritize quality, liquidity and issuer selection.

International Bonds and Credit (including EM Debt)
Global fixed income is increasingly viewed as a source of diversification. PIMCO favors exposure across developed and selected emerging markets, while AllianceBernstein sees opportunities outside the US, particularly on a currency-hedged basis. BlackRock prefers short- and medium-term euro-area government bonds, which it recently upgraded to overweight on the view that fears about how long policy will stay restrictive are overdone, and Franklin Templeton remains constructive on emerging market debt. The shared conclusion is that opportunities are increasingly global, though country selection, currency management and liquidity discipline remain essential.

Sources:

• Rupture and Resilience: 2026 Global Economic Outlook | PIMCO
• Charting the Year Ahead: Investment Ideas for 2026 (relevant sections on equities, gold and fixed income) | PIMCO
• Global Investment Outlook 2026 | Franklin Templeton
• 2026 Midyear Global Investment Outlook | BlackRock
• Bloomberg, Jun 30, 2026 | BlackRock (rebaja EM / alza bonos euro)
• Global Capital Markets Outlook: 2Q:2026 | AllianceBernstein
• 2026 Mid-Year Outlook: Promise and Pressure | J.P. Morgan