Related
news
Shares Magazine
While ultimately the damage to most investors’ portfolios has likely been relatively light so far this year there has certainly been plenty for us all to fret about in 2026.
We have yet to see the full inflationary impact of the Iran war and the shutting off of the Strait of Hormuz but most are aware it is coming, while confidence in the AI story is being put under some strain by lofty valuations. Meanwhile, some high-profile IPOs in the coming months will provide another big test of market sentiment.
However, while there are certainly reasons for caution there are some reasons for optimism too.
Heading into a turbulent period in decent shape
As Berenberg’s chief economist Holger Schmieding observes: “Many fundamentals remain favourable: i) Labour markets remain more resilient than in the past on both sides of the Atlantic; ii) healthy balance sheets serve as buffers against downside risks for households and businesses that do not need to correct prior excesses; iii) many governments are stepping up investment and defence spending; and iv) financial institutions are mostly in good health.”
So, although we may be heading into a period of turbulence, the global economy is arguably better positioned than it has been on the cusp of previous crises.
The latest US quarterly earnings season revealed significant resilience in corporate earnings. According to Bank of American Merrill Lynch (with data based on 90% of the S&P 500 having reported), some 64% of companies beat earnings per share and sales expectations in the first quarter, the highest rate in five years.
Guidance was also stronger than is typical, with 1.6 times more above than below consensus earnings outlooks delivered by big US companies. This compares with a long-term average of 0.8 times.
For all the noise around right now, the earnings reported by the world’s biggest companies are probably the biggest determining factor in how markets perform and, for the time being at least, the situation there looks supportive for sentiment.
The second-quarter earnings season which kicks off in mid-July with the big Wall Street banks will provide the next opportunity for investors to examine the health of big US businesses.
A broadening out of returns and the case for remaining calm and diversified
Another cause for some cautious cheer is the broadening out of equity market returns beyond just the US in 2026 – with UK, European and emerging markets stocks enjoying some time in the sun before the US resumed market leadership in the wake of the conflict in the Middle East.
This doesn’t mean we should be blasé about the real risks around inflation and elevated valuations. It’s just to say that the world is rarely as bleak or as buoyant as the most confident commentators would suggest.
The best thing investors can do is not to panic and to stick to their long-term plan and maintain a level of diversification which means if something goes wrong in one part of a portfolio, its impact can be absorbed elsewhere.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...
