Where markets stand today

After a difficult start to the year, global equities staged a powerful recovery through the second quarter, with the MSCI All Country World Index returning 14.8% in sterling terms between April and June. That rally has been underpinned by an extraordinary corporate earnings season, particularly in technology and semiconductors, and it has largely continued into July despite renewed geopolitical tension. The S&P 500 and FTSE 100 both remain up strongly for the year — around 9% and 6% respectively — even as the Middle East ceasefire that helped drive the Q2 rally has, in the past two weeks, come apart.

That combination — resilient markets, deteriorating geopolitics — is the central tension investors need to weigh right now.

The ceasefire that didn't hold

In mid-June, the US and Iran announced a formal peace framework: an immediate cessation of hostilities, a commitment to reopen the Strait of Hormuz within 30 days, and a 60-day window to negotiate Iran's nuclear programme and sanctions relief. Oil prices, which had spiked above $120 a barrel during the conflict, fell 38% to around $73 by the end of June as the deal appeared to hold, and markets looked through the risk to focus on earnings instead.

That calm has not survived July. Iran has continued to assert control over parts of the Strait of Hormuz and has fired on commercial shipping in the past fortnight, prompting the US to resume military strikes across Iranian targets. President Trump has told Congress that military action has resumed, the US has reinstated its naval blockade of Iranian shipping — with a 20% fee attached to cargo transiting the Strait — and both sides currently say they have no plans to return to the negotiating table. Oil has jumped back above $80 a barrel, and gold has seen renewed safe-haven buying this week as a result.

This is now the single biggest swing factor for markets in the second half of the year. A genuine de-escalation would likely extend the equity rally and take pressure off gilts and inflation expectations. Continued escalation would test how much longer markets can keep looking through geopolitical risk — and would put renewed upward pressure on energy prices, bond yields and the Fed's rate path.

The AI supercycle: earnings still doing the talking

Set against that backdrop, the underlying corporate story remains remarkably strong. Global semiconductor sales are currently rising at an annual rate of 94% — a pace not seen since the mid-1980s PC boom — and the Philadelphia Semiconductor Index rose 88% in Q2 alone, its best quarter since the index was created. Technology sector earnings grew 55% year-on-year, and critically, that strength is no longer confined to the biggest names: profit margins for the S&P 500 excluding the largest tech companies have risen to a record 13.2%, while margins for the rest of the world have reached a new high of 11.8%.

Nvidia remains the world's most valuable listed company at over $5 trillion — worth more than the entire UK stock market — yet still trades on a forward P/E of around 20 times, a level that looks reasonable given the pace of earnings growth. Longer-run, the pattern is striking: S&P 500 earnings-per-share growth has accelerated from 3.9% annualised between 1900 and 1992, to 8.2% through the dot-com and internet era, to 16.3% annualised since ChatGPT launched in November 2022. This is not hype. This is fundamentals — and it's the reason equity markets have, so far, been able to absorb a reignited Middle East conflict without a serious correction.

SpaceX, OpenAI and Anthropic: the IPO market stays open

The pipeline of mega-IPOs remains one of the defining features of this cycle. SpaceX, having raised approximately $75 billion in its IPO, closed Q2 around 25% above its flotation price — a market cap over $2 trillion — and has since raised a further $25 billion in bonds. OpenAI and Anthropic have each filed with the SEC to go public. Goldman Sachs estimates total US equity supply this year, including IPOs, at roughly $1.1 trillion — comfortably outweighed by projected corporate buybacks of approximately $1.3 trillion, meaning net corporate demand for equities remains positive, a meaningfully different backdrop to the dot-com peak in 2000.

Central banks and UK politics

The Federal Reserve, under new chairman Kevin Warsh, held rates unchanged at its June meeting but struck a hawkish tone, with roughly half of policymakers on the dot plot expecting at least one further rate rise before year end. Warsh has been explicit about defending the Fed's independence from political pressure to cut. With the Iran conflict now reigniting inflation risk through the oil price, that hawkish stance looks more likely to persist through the second half of the year than it did a fortnight ago.

The European Central Bank raised rates to 2.25% in June; the Bank of Japan raised by 0.25%. The Bank of England has been the most cautious of the major central banks, holding at 4.25% in a 7-2 vote in June, and is expected to raise once more this year to 4.0% — though renewed energy-driven inflation pressure is now a live risk to that outlook too.

On the political side, Keir Starmer resigned as Labour leader on 22 June — the UK's sixth PM to leave office in under a decade — with Andy Burnham succeeding him as the seventh in ten years. Gilt markets took some comfort from Burnham's commitment to maintain Rachel Reeves's existing fiscal rules. UK equities have lagged global peers this year, with the FTSE 100's gains driven more by financials and miners than by the technology exposure lifting US and Asian markets.

Asia: the standout region

The most dramatic equity performance this year has come from Asia. Korea's Kospi rose 68% in Q2 alone as Samsung, SK Hynix and LG Electronics benefited from surging AI-related semiconductor demand. Japan's Topix gained 14.3%, supported by improving profitability and shareholder-friendly reforms. Chinese equities have been more mixed, with Hong Kong's Hang Seng down and the Shanghai Composite up modestly. Emerging markets broadly remain among the strongest-performing regions of the year, led by structural growth in Asian technology.

Bonds and gold: the inflation hedge is repricing

UK gilts returned 2.1% in Q2, with the 10-year yield settling back from a peak above 5%. That relief has partly reversed this month: both gilt and Treasury yields have ticked higher again as the renewed Iran conflict revives inflation concerns. Gold tells a similar story in miniature — having spiked to a record above $5,600/oz in January before falling back sharply through the spring and summer, it is now up again on this week's safe-haven demand, though it remains down year-to-date overall. Credit markets have stayed comparatively resilient throughout, supported by healthy corporate balance sheets and attractive income levels.

Where we go from here

The first half of 2026 demonstrated the value of holding a diversified, long-term portfolio through volatility. Equities delivered strong returns despite a major geopolitical shock, powered by genuine earnings growth rather than speculation. That fundamental story hasn't changed. What has changed, in just the past two weeks, is the geopolitical backdrop it now has to contend with: a ceasefire that looked durable at the end of June has unravelled, and the next few weeks in the Middle East will likely do more to shape markets through the rest of H2 than anything in the earnings calendar. We're watching it closely and will keep you updated.