Adapting and recovering - the case for global equities in 2026

Equity markets show strength in 2026

Despite geopolitical turbulence, global equity markets have shown remarkable strength in 2026, defying concerns about the war with Iran. Despite a swoon in March, they are continuing to deliver robust returns. 

Historically, periods of heightened geopolitical risk have often brought increased market volatility and short-term declines in equity prices. Yet equities tend to recover as markets adapt and investors refocus on fundamentals. Right now, those fundamentals are looking healthy. 

While short-term reactions to uncertainty can be severe, long-term investors have typically been rewarded for maintaining their exposure to equities. This resilience is rooted in the capacity of companies to innovate, adapt, and find new paths to growth, even in challenging circumstances.

This perhaps surprisingly strong performance is supported by a range of different influences. Let’s look at these in more detail.

Supportive conditions underpin performance

The war, and the ensuing closure of the Strait of Hormuz, has caused energy prices to surge and crimped the supply of fertiliser feedstock and helium – the latter important to the semi-conductor industry, causing inflation and supply chain worries to resurface. However, while central banks worldwide are increasingly watchful, they have maintained their relatively accommodating monetary policies. These policies have enabled ample liquidity, low borrowing costs and flexible financial conditions which provide a stable foundation for risk assets (such as equities) and encourage continued investment. Investors see the closure as something temporary and are willing, at the moment, to look past it at the enduring strength of company profits.

Sustaining profits and growth

Corporate earnings during the current reporting season have built further on the excellent growth seen in 2025. Encouragingly, this is broader than just the dominant technology sector, with financials, industrials and communications companies joining in the positive zeitgeist. Earnings estimates for the rest of the year have increased compared with the end of 2025, especially from large multinational firms, and this has helped to boost investor confidence.
 
Interestingly, even if valuations are high by historical standards, the strength of earnings – in the US in particular – means that despite impressive rises in equities, valuations today are slightly lower than they were at the start of 2025. Companies are navigating uncertainty with agility, leveraging technological innovation and global diversification to sustain profits and growth.

US growth is boosted by fiscal support and AI

This strength in earnings has been increased by the following specific US factors:                                                                                         

US government spending

High deficit spending has stimulated the economy, supporting consumer demand and business investment. 

‘One Big Beautiful Bill Act’

The passage of the ‘One Big Beautiful Bill Act’ in the summer of 2025 injected additional fiscal support, tax cuts and incentives for capital investment, all aiming to revitalise infrastructure, accelerate technological adoption and fund social programmes.

Individual stimulus cheques

Even if the price of gasoline at the pump has risen sharply, the provision of ‘individual stimulus cheques’ to consumers has helped to mute the impact on consumption. This legislative package has been a significant tailwind for sectors ranging from construction to renewable energy.

AI investment

The enormous surge in investment in AI is further reshaping the economic landscape. Major US firms are at the forefront of this innovation, driving productivity gains and opening new avenues for growth. Notably, expected spending on AI is projected to continue to rise sharply, with forecasts suggesting just the top four AI spenders – Amazon, Microsoft, Alphabet and Meta – will increase their total spending on AI infrastructure from US$380bn in 2025 to nearer US$700bn by 2027. 

Once all the other players are added in, estimates for total US investment in AI for 2027 are as high as US$1.5trn. This is such a gigantic sum, being spent at pace, that it has become a major underpinning of America’s performance; not just in semiconductors, but in construction materials, power plants, building firms and widely across the entire economy.

US economy

The US economy’s robust underlying momentum is also a key factor. Despite a small wobble at the end of 2025, probably due to the Trump administration’s immigration policies, job growth has remained vigorous, supporting buoyant consumer spending. So, even in the face of external threats, the domestic US backdrop remains favourable and continues to attract global capital.

Encouraging signs in Europe and UK equities

Elsewhere, although Europe faces a complex mix of challenges and opportunities that influence equity performance, increased German spending on defence and infrastructure marks a shift towards greater fiscal stimulus from the region’s dominant economy, offering support to industrial and construction sectors. 

This is happening even as short-term pressures from the conflict between the US and Iran heighten geopolitical risks, with ramifications for energy prices, supply chains, and investor sentiment. Nonetheless, European equities are supported by innovation in sectors such as green technology, as well as the stability provided by multinational corporations with global reach. The European Central Bank’s supportive stance and targeted stimulus measures continue to encourage investment.

The UK economy is facing especially tough headwinds, with sluggish growth, persistent inflation, and political uncertainty weighing on domestic activity. The recent local council elections have only underscored the risks to our political stability. However, the UK economy is small in terms of the global whole and the composition of the UK equity market, with a large majority of its earnings derived internationally from sectors such as pharmaceuticals, mining, energy and finance, offers insulation from the anemic local outlook. As a result, UK equities remain relatively attractive to investors seeking exposure to global growth and are by no means as expensive as many markets elsewhere.

A resilient Chinese economy

Finally, in China the economy continues to demonstrate resilience, supported by ongoing government stimulus measures and an expanding consumer sector. Chinese equities are trading at relatively cheap valuations compared to global peers, and these lower valuations present opportunities for long-term investors, as China’s commitment to technological advancement and domestic growth initiatives could drive renewed momentum and attract capital seeking value and diversification.

A positive outlook for equities

While risks undoubtedly remain and periods of volatility are likely to persist, the overall outlook for equities remains positive, if not dramatically so after three years of strong performance. For our client portfolios, we will maintain a diversified approach, focus on quality companies, and remain mindful of sector and regional dynamics, to ensure we are well positioned to navigate ongoing geopolitical turbulence.