If there was anything like a consensus trade coming into 2026, it was that diversification within equities would be prudent.
US large-cap technology stocks had dominated returns, and, more broadly, stocks listed in America came to represent about 70 per cent of the global index.
Many of the themes that drove the performance were being challenged as the new year began, with a sense that defence and commodity stocks, just as readily available in markets outside the US, would have time in the sun.
As part of this determination to diversify, the dollar weakened relative to sterling and the euro.
Then came the travails of the so-called “liberation day”, when fears around the consequences of tariffs sent many stocks spiralling, and a hunt for safe havens began.
Investors moved from pricing in rate cuts in the US this year, something which should be benign for equity investors, but then came the conflict in Iran, and a flight to safety for investors, with the dollar rising in value, and US technology stocks also displaying previously undiscovered potential as safe haven assets.
Despite a year drenched in turmoil, the US equity market hit fresh record highs in April.
But is the world’s largest market now set for a fresh period of dominance, or should investors take a market hitting record highs as a signal the time has come to revisit the diversification trade?
What has changed?
Daniel Casali, chief investment strategist at Evelyn Partners, says the recent strong performance of equity markets has been the result of “cyclical and structural factors aligning”.
He says: “Despite ongoing tensions in the Middle East and uncertainty around oil supplies, global equity markets have remained resilient. The S&P 500 is trading at record highs, suggesting investors may be looking beyond geopolitics and focusing on a more powerful driver of returns: company earnings.
“Concerns about major oil supply disruptions filtering into the global economy have not yet materialised. While Iranian actions and US naval involvement in the Strait of Hormuz have led to shipping re-routings (including tankers being redirected to the Gulf of Mexico), energy markets have been volatile, but they continue to function.
“As a result, attention has shifted back to the US earnings season. The reporting period is still at an early stage, with only around 10 per cent of S&P 500 companies having announced results. Expectations are high. Analysts are forecasting earnings per share growth of roughly 18 per cent for both 2026 and 2027. If achieved, this would support further market gains.”
