Equity markets have demonstrated remarkable resilience in the face of the ongoing Middle East conflict, with macroeconomic data revisions and earnings growth surprises. The year 2026 has been a rollercoaster, with initial assumptions of positive global economic growth and equity market gains challenged by AI-induced market tumult and the Iran war. Despite these disruptions, earnings revisions have remained positive for major indices, with expectations of significant growth in 2026 and 2027. The technology sector's performance has been a key focus, with a notable divergence between US and emerging market technology stocks. However, this gap is narrowing, and earnings growth is expected to be more balanced across the board. The US Federal Reserve's response to the Iran war will be crucial, with potential rate cuts benefiting small-cap and tech stocks. European equities have faced challenges, but their valuations remain attractive, and strategic autonomy initiatives offer potential opportunities. Emerging markets, particularly commodity exporters, have benefited from oil price increases, and the focus on technology hardware and semiconductor companies continues to drive earnings growth. The resilience of equity markets is attributed to the belief that the war will not last, and the economic expansion remains intact. However, challenges such as US tariffs and anaemic consumer demand persist in emerging markets. Overall, the equity outlook remains positive, with potential for renewed gains, but investors should remain cautious and consider the risks associated with emerging markets and specialised sectors.
