Eventful times reinforce the need for considered diversification and active anticipation of unfolding risks and opportunities.
Doubt is the dominant theme of today’s financial markets. Doubts over soaring AI-related capital expenditure; doubts over the protracted Middle East conflict; doubts over rising inflation and febrile bond markets.
Yet reassuringly, once again, the global economy is proving resilient in the face of uncertainty and adversity. What’s more, stock markets appear supported by strong and reasonably broad-based corporate earnings growth.
Our outlook for financial markets in the rest of 2026 and into 2027 is positive – provided the duration and impact of the war in the Gulf remains limited. That said, as with any fluid geopolitical situation, we remain alert to any developments that would change our views and asset allocation.
These views inform positions across our CT Universal MAP range as we deploy strategic and tactical asset allocation decisions with individual security selection – an active approach designed to navigate just the kind of shifting risks and opportunities seen today.
Markets remain resilient amid geopolitical strain
The Iran war is having an influence over markets – bond markets for example feeling the impact of elevated inflation. It’s not clear that President Trump can bring hostilities to an end without ceding some form of control over the Strait of Hormuz, although a wide range of outcomes remains possible. A prolonged conflict would provoke further instability, with ongoing implications for energy prices and, potentially, regions beyond the Middle East.
By stoking inflation, higher oil and gas prices have sparked a reversal in the outlook for interest rates. A year ago, the market was pricing in up to 1% of interest rate cuts from the US Federal Reserve (Fed) and anticipating other central banks would also ease. Since then, the Fed has hiked policy rates for the first time in three years, the European Central Bank has also tightened, and major central banks generally appear more likely to increase than cut the cost of money.
And yet global equity markets have scaled new heights and credit spreads mostly remained tight. Robust corporate earnings growth is supporting stock valuations, largely due to the extraordinary level of infrastructure expenditure related to AI. We are alert to any signs of slowdown in this capital expenditure boom, but for now it continues.
Against this backdrop, we expect modestly positive returns across asset classes, albeit with some uncertainty. The CT Universal MAP portfolios are focused on the long-term opportunities arising from the prevailing economic and corporate environment, not least technological disruption. Their diversification across a wide range of opportunities provides some cushion against potential volatility, and requires structure, diligence and patience.
Where do we expect gains?
Currently, we favour emerging market equities which trade at a lower valuation than developed equity markets. While China’s economy has challenges, especially relating to real estate, emerging markets are a broad universe encompassing a diverse group of companies, including some benefiting from AI capital expenditure and rising domestic demand. We also like the US where despite the risk of inflation driving more policy rate rises than expected valuations look appealing given that corporate earnings growth is exceeding Wall Street analysts’ expectations.
Turning to fixed income, we take a positive view of government bonds following the recent sell-off and spike in yields. We do not believe that inflation and monetary tightening will be as bad as the sell-off suggests.
At eventful times such as today – when a decade’s headlines can seem compressed into a matter of months – forward-looking judgement, fundamental research and the flexibility to adapt as circumstances change can prove especially valuable. For advisers, whether deployed as a standalone solution or alongside passive strategies in a blended portfolio, the CT Universal MAP range reflects forward-looking positioning based on valuations, company earnings prospects, policy direction, macroeconomic conditions and geopolitical shifts.
Adapting to evolving events
Looking forward to 2027, everything has changed since the surprise of the Iran war. While economic stimulus and declining policy rates were expected to prolong positive economic cycles, the Hormuz energy shock has forced central banks to raise rates. We remain positive about markets but it’s a fine balance that calls for expert judgement across a diversified range of risk and opportunity.
