Reflections of the CIO June 2026...

The month of June brought the second quarter of 2026 to a solid close. After the shock and panic surrounding the war in Iran had passed through its initial phase in March, market sentiment steadied and then rebounded sharply as investors concluded that the most likely outcome was a resolution of the conflict by summer. As this opinion gained ground steadily over May and into June, a remarkable recovery in global stock markets gained traction and was further boosted by the exponential performance of a small number of giant technology stocks.

We outlined the reasons in our previous quarterly report as to why markets were, ultimately, so relaxed about the war and consequent oil price spikes not persisting for too long. Partially it was down to lessons from history, but also due to ‘constraints on the combatants’, which could be everything from physical constraints (munitions running out or objectives being achieved) to constraints put in place by the rest of the world, as the pain from higher oil prices spread globally. In June this view did indeed turn out to be correct, although we think it would be complacent to assume that there will be a neat finish to a messy conflict.

The global economy also remained remarkably resilient during the month, enjoying something of a cyclical upswing and proving strong enough to absorb the effects of the war without tipping into a meaningful slowdown.[1] On the inflation side, this combination of economic strength and an oil price surge has boosted inflationary pressures, prompting a change in bond market expectations for future interest rate moves.

This mood swing was further encouraged by a communication policy change for the Federal Reserve, now under the direction of a new Chairman. This change could best be summarised as saying not very much at all (or removing ‘forward guidance’) and leaving the bond market to make its own mind up about the direction of policy, without any help from the actual policy makers.

By the time June was over, it had become clear to us that the macro environment of the last three years has now shifted into a different phase, one which is still healthy, but also less supportive than investors had become used to. In effect, we have now moved from a period when interest rates were generally declining, into a period where they are generally rising again.[2] How much they have to rise to control accelerating inflation is yet to be determined, but we suspect this issue will come to dominate the top-down narrative for the rest of the year.

Another complication that was in investors’ minds last month related to the ongoing issue regarding the amount of leverage and ‘froth’ in the system – evidenced in the first quarter by the sharp rallies then declines in the gold price, driven by retail investors who flooded in and then out again over a period of a few short months. Similar retail flows into leveraged instruments were and remain influential in the performance of technology stocks, especially in Asia. The formation and subsequent bursting of these ‘mini bubbles’ can have an outsized effect on market sentiment or momentum, so although we remain optimistic about the outlook, we are also alive to the possibility of frequent, hard to spot in advance, reversals.

Looking back to the beginning of 2026, we had been positioning portfolios for a year during which returns would most likely be harder to come by. We didn’t anticipate the war-related dip, nor the consequent outsized recovery, but do feel that, as that particular influence fades into the rear view mirror, we will return to our initial scenario where gently rising interest rates will act as a moderate brake on returns. The trend is still likely to be upward, but returns are also likely to be more volatile and to come at a more moderate pace than over the last three years.

We recognise that markets are often driven overwhelmingly by a dominant global theme, such as an energy price spike or a war, but also recognise that there are currently many powerful local drivers of returns that matter too. By consistently broadening portfolio investments as much as we can across asset classes, geographies and styles, we think we can continue to use each portfolio risk ‘budget’ to capture these returns, whilst hopefully building in enough resilience to ride out the inevitable bumps when they come, without too much drama.

[1] Reuters, “Global Economy Resilient to Middle East War Shock, Agencies Say,” Reuters, July 8, 2026, https://www.reuters.com/world/global-economy-resilient-middle-east-war-shock-agencies-say-2026-07-08/ accessed on 13/07/2026

[2] “Where Next for Interest Rates?,” Fidelity UK, June 18, 2026, https://www.fidelity.co.uk/markets-insights/markets/uk/when-will-interest-rates-fall/ accessed on 13/07/2026