Staying disciplined when geopolitics steals the spotlight

Last week, oil prices rose as investors started to price in a higher chance of US military action against Iran. Brent rose above 70 dollars a barrel after Washington hinted that Tehran hadn’t met key demands in the nuclear talks, raising the prospect of forceful action. There were suggestions that any US operation could be broad and drag on. However, the truth is, no one knows how a conflict like this would unfold.  
 
And almost no one could have also predicted the twist and turns of the US trade policy. In the latest developments, the US Supreme Court ruled against Trump’s tariffs, but the President immediately rose global tariffs to 15%. These new tariffs will only be valid for 150 days before further authorisation form the Congress. Emerging markets, such as China, Brazil and India, will enjoy the biggest reduction in average tariff rates. We believe this will support our overweight position in emerging market equities. However, the UK, the EU and Japan will see an increase in tariff rates. For now, it’s unclear if and how countries will react or retaliate and whether the previously agreed trade deals still stand.  
 
This uncertainty is exactly why we don’t trade geopolitics. The timing, scale, and direction are inherently unpredictable. What this really means is that portfolios need to be built to handle these shocks rather than react to them. Geopolitical flare-ups usually hit supply chains and commodities. That’s why we hold inflationprotected bonds on one side, and why we keep exposure to commodities like oil and gold on the other. They tend to help when sentiment turns. Equities typically recover quickly, with history showing limited lasting impact.

The latest Federal Reserve (Fed) minutes showed a shift to a more balanced tone. Officials acknowledged steady economic activity, fewer risks around jobs, and ongoing progress on inflation, even if the path has been bumpy. We expect the Fed to refocus on inflation rather than jobs. We, and the market, still anticipate two more rate cuts this year, although we think they are unlikely in the first half of the year.  
 
With inflation below 3% and a solid economy, incoming Fed Chair Kevin Warsh faces a delicate start. The White House wants lower rates. But Warsh will struggle to build consensus for cuts without weaker data on either inflation or employment. This backdrop supports our underweight position in US Treasuries.

Global equities continue to climb in 2026, led largely by markets outside the US. The shift from last year is striking. After a long period of US dominance, 2025 saw the US lag most major markets in both local and dollar terms. Big tech held the lead until autumn, but concerns about the profitability and financing of AI investment began to weigh on sentiment. 
 
This has driven money back toward older economy sectors such as Energy, Materials and Consumer Staples, while Technology has cooled. Rising tension in the Middle East has further supported commodity linked sectors. Earnings confirm the broadening. With most fourthquarter results reported, the 493 companies outside the “Magnificent Seven” in the S&P 500 delivered around 8% yearonyear earnings growth. For years, the Magnificent Seven carried most of the earnings momentum. Now, the rest of the index is pulling its weight. This underpins our exposure to the S&P equal weight index, which continues to benefit from this rotation. 
 
Elsewhere, emerging markets are also performing well. Valuations remain attractive, they benefit from AI driven demand across Asian tech, and a weaker US dollar is supportive. We stay overweight with conviction. 
 
Overall, our 2026 outlook for equities is constructive. The global economy is solid, tariff effects are fading, fiscal policy continues to help, and we think the Fed is still likely to cut rates later this year. Together, that mix supports healthy profit growth, which keeps us moderately overweight equities over bonds. US valuations are demanding and the AI landscape is evolving, so we remain broadly diversified across regions, sectors, and investment styles. Where regulations and client knowledge allow, we also keep an insurancetype position that tends to rise when volatility spikes.

If last week was rather uneventful in terms of data, it’s going to be even quieter this week. So, it could be mostly about US and Iran. Nonetheless, producer prices in the US (Friday) could moderate, though it’s unlikely to move Fed rate cuts expectations. We’ll also have inflation out in France, Spain and Germany (Friday) before data comes for the Eurozone next week. We expect inflation to remain around 2% and the European Central Bank to keep the policy rate at 2% in 2026.