Market outlook for the second half of 2026

• USA: As a net exporter of crude oil and natural gas, the USA is better shielded from the energy shock than many other countries. Whilst households here are also suffering from higher energy and petrol prices, retail sales remain robust overall. Households are, however, increasingly financing their consumption from savings or through credit. Furthermore, strong investment, particularly in the field of artificial intelligence, and an expansionary fiscal policy are underpinning growth. Robust growth of 2.0 per cent is therefore expected for the current year.
• Eurozone: At the start of the year, the outlook was significantly more positive. Germany’s fiscal stimulus package – comprising a 500-billion-euro fund for infrastructure and the green transition, as well as the relaxation of the debt brake to allow for higher defence spending – was intended not only to revitalise the domestic economy but also to provide a boost to the supply chains across the entire eurozone. However, the high dependence on foreign energy and the energy-intensive industry in countries such as Germany meant that the energy price shock has clouded the near-term outlook. The eurozone’s recovery is therefore being delayed. A moderate growth rate of 0.8 per cent is therefore expected for 2026.
• Switzerland: Below-average growth is also expected for Switzerland in 2026. The economy is being weighed down by a weaker global economy, geopolitical tensions, increased uncertainty in international trade and higher energy prices. Export-oriented sectors in particular are under pressure, as foreign demand is growing only slowly and the Swiss franc remains comparatively strong. Robust domestic demand is providing support: private consumption remains the key driver, whilst investment activity remains subdued for the time being. A gradual improvement is expected as the year progresses – particularly if the situation in Europe stabilises and international demand picks up again. Growth of 1.0 per cent is expected for 2026.
• China: The outlook for China remains subdued. The ongoing property crisis, weak wage growth, higher energy prices and subdued consumer sentiment are holding back domestic demand. Furthermore, previous government consumption support schemes are coming to an end, meaning that only limited impetus is expected from private consumption. Government programmes are likely to continue to support investment, whilst private investment is expected to remain subdued due to weak demand, existing overcapacity and cautious business sentiment. Overall, a structural slowdown and a growth rate of 4.5 per cent are anticipated for the current year.

The energy price shock has driven up inflation worldwide. In the US, for example, it rose by 1.6 percentage points to over 4 per cent in the first half of the year. In the eurozone, inflation increased by 1.2 percentage points to over 3 per cent. In Switzerland, the increase was significantly lower, with inflation climbing from 0.1 per cent to 0.6 per cent. This was due to the country's more diverse energy mix and the lower proportion of energy in the consumer price basket.

However, this is not the same inflation scenario as in 2022. There are three reasons for this: lower initial inflation levels, more firmly anchored inflation expectations than in 2022 and normalised labour markets.

Although energy prices have fallen significantly since the US-Iran agreement in June, it will likely take several months for inflation to normalise. Uncertainty remains high, and other raw materials such as plastics and fertilisers have risen in price by around 50 per cent. Such cost increases work their way through supply chains with a time lag and can continue to drive up prices long after energy prices have normalised. We therefore expect inflation to rise slightly further in the short term, despite the fall in oil and gas prices, before it begins to ease.

Inflation in both the US and the euro area is well above their respective central banks’ targets. By contrast, inflation in Switzerland remains comfortably within the Swiss National Bank’s (SNB) target range. Consequently, the central banks are taking different approaches.

The European Central Bank (ECB) raised interest rates in June in an attempt to curb rising prices. In contrast, the US Federal Reserve, which had suggested the possibility of interest rate cuts at the start of the year, now sees no scope for this. We expect both the US Federal Reserve and the SNB to maintain their current monetary policies in the second half of the year. The ECB, on the other hand, could implement a second interest rate hike this year before changing direction again next year.

The outbreak of war in the Middle East led to a sell-off in equities in spring. However, the recovery from April onwards was exceptionally strong, driven by a ceasefire, robust corporate earnings and the AI trend. By the middle of the year, global equity markets had made significant gains. Emerging market equities recorded the largest price gains in Swiss francs, at 25 per cent. Despite this strong rally, valuations remain close to the historical median thanks to above-average earnings growth. By contrast, the US equity market continues to trade at elevated valuations.

In the second half of the year, AI is likely to continue to captivate equity investors. Optimism remains, fear of missing out lingers, usage is rising steadily, and the expected IPOs of OpenAI and Anthropic will provide further catalysts for this euphoria.

However, the AI trend also harbours risks. Earnings expectations for technology companies are high. The upcoming earnings season will be the next test for the AI narrative. Concentration is a particular concern: the ten largest holdings in the MSCI World Index are all linked to the AI boom and account for just under 30 per cent of the index – all of them US companies. US stocks account for over 70 per cent of the world index in total. If a handful of companies disappoint, it affects the entire market.

The emerging markets index is more broadly diversified regionally, but here too AI stocks dominate, predominantly semiconductor and hardware firms. European and, in particular, Swiss equities offer genuine diversification and reduce the risk of concentration in the AI sector. The Swiss market’s dividend yield of around three per cent is an additional benefit in the current low-interest-rate environment.

Fears of inflation have led to a rise in interest rates worldwide. However, with the fall in energy prices in recent months, interest rates have dropped again in many places. For instance, the yield on ten-year Swiss government bonds rose to as high as 0.6 per cent, but by mid-year had fallen back to just under 0.3 per cent – and was thus at a similar level to that at the start of the year

Even a global energy price shock has therefore had little impact on interest rates in Switzerland. Switzerland remains a low-interest-rate haven for the foreseeable future. Alternative sources of return are therefore essential for Swiss investors.

Yields abroad are significantly higher. However, anyone wishing to hedge against currency risk must forgo the bulk of this additional return to do so. Hedging for USD investments currently costs just under 4 per cent a year, whilst the cost for EUR investments stands at 2.4 per cent. The latter is likely to rise even further in the event of a further ECB interest rate hike.

In an economic downturn, however, government bonds could still prove effective: given the current high yields, nominal government bonds from countries outside Switzerland could generate substantial capital gains should the global economy cool significantly.

Yields on corporate bonds, particularly those issued abroad, are high but, despite the growth risks, still command significantly below-average credit spreads. Investors are therefore receiving little compensation for the corporate risk. One exception is AI-related debt: credit spreads in the technology sector have risen. Should the AI sector be revalued, they could surge sharply.

The higher risk of lower credit quality in the high-yield segment compared with the investment-grade segment is also being remunerated at below-average levels. We therefore continue to focus on quality and favour investment-grade bonds over high-yield bonds.

Since the start of the year, Swiss real estate funds have experienced greater volatility, in line with the broader market, due to geopolitical events and interest rate volatility. Following a slight market cooling-off, real estate funds now appear to be valued somewhat more fairly again. The average premium stood at around 32 per cent at the end of June 2026 which is however still above the long-term average.

Swiss property investments are benefiting from the persistently low interest rate environment and a relatively robust economy amidst geopolitical uncertainty. Current hopes for a swift resolution to the Middle East conflict and the positive outcome of the referendums on housing policy issues are fostering a more optimistic mood. The yield spread of more than 250 basis points between the distribution yield on property funds and the yield on ten-year government bonds highlights the attractiveness of property investments.

Investors continue to focus on residential property, which is valued for its defensive characteristics. It benefits from a structural shortage of supply coupled with high demand. Furthermore, it offers stable, predictable income streams in Swiss francs as well as a degree of protection against inflation.

Recent political developments, in particular the rejection of the ‘Wohnschutz Zürich’ and ‘Keine 10-Millionen-Schweiz’ initiatives, have reduced regulatory uncertainty for the time being and are likely to have a positive impact on listed real estate investments. Combined with their perceived role as a safe haven, Swiss real estate investments remain in demand in a volatile global environment due to their defensive characteristics.

The conflict in the Middle East led to an appreciation of the US dollar in the first half of the year. The greenback appreciated by 2 per cent against the Swiss franc and by 3 per cent against the euro.

Although geopolitical uncertainty has eased somewhat in June, a sharp weakening of the US dollar is not expected. On the one hand, the geopolitical situation remains fragile; on the other, robust US economic momentum is likely to support the currency in the second half of the year.

The euro benefited from the ECB’s interest rate hike and appreciated by around 1 per cent against the Swiss franc in June. Investors are anticipating a further interest rate hike, which should support the euro; however, weaker economic momentum is likely to limit the upward pressure. We therefore expect the EUR/CHF currency pair to trade sideways in the second half of the year.

From a long-term perspective, the Swiss franc benefits from low inflation, low public debt and political stability – all characteristics that are becoming increasingly rare. The long-term appreciation trend therefore remains intact. It is therefore important for Swiss investors to keep a close eye on their long-term currency risks.

Further sources of returns and diversification can be found in alternative investments.

Commodities, particularly crude oil, soared in the wake of the Middle East conflict. Although the US-Iran agreement at the end of June led to a sharp fall in energy prices, a full normalisation of the energy supply is likely to take time. As the situation remains fragile, the price of crude oil is likely to trend downwards, but the path to that point is likely to remain extremely volatile.

In the first half of 2026, gold initially experienced an extraordinary rally to a record high of around USD 6,300 per ounce, driven by strong ETF inflows, Chinese retail investors, geopolitical risks, a weak US dollar and sustained buying by central banks. This was followed by a marked reversal in the trend: profit-taking, rising interest rate expectations due to higher inflation, higher US interest rates and a stronger US dollar put pressure on the gold price, causing it to trade around 3 per cent below its level at the start of the year by the end of June.

However, the medium-term drivers of performance remain intact. The latest survey by the World Gold Council shows that 89 per cent of central banks expect to continue building up their gold reserves over the next 12 months. In the medium term, gold also remains attractive as a hedge against rising global government debt and doubts about the long-term credibility of the US dollar.

Catastrophe bonds also provide additional diversification within a mulit-asset portfolio, thanks to their low correlation with traditional investments.

For the longer-term investment horizon, investments in private assets are also of interest to institutional investors, enabling them, amongst other things, to capture an illiquidity premium and achieve additional diversification. In the private credit sector, for example, we favour low exposure to software companies and a focus on quality. Manager selection is also key here. The spread in returns between top-tier and less strong managers for investments in private assets is significantly higher than for traditional asset classes.