2026 Midyear Market Outlook_Five shifts reshaping markets_UK

Introduction: When resilience meets realityThe first half of 2026 has been a lesson in resilience—but not stability.Markets have absorbed a remarkable sequence of shocks: the Iran war, renewed energy security concerns, sticky inflation, volatile policy expectations, and the continued reordering of global supply chains. Yet risk assets have held up better than many feared, supported by strong US growth, strong corporate earnings, and relentless artificial intelligence (AI)-related investment. The risk for investors is mistaking resilience for calm. The market regime is changing.As our scorecard shows, many of the themes we identified at the start of the year have broadly played out. Fiscal expansion and AI investment have underpinned stronger-than-expected US growth. Equity leadership has begun to broaden beyond mega-cap technology, even as AI remains a dominant force. Government bond yields have stayed under pressure from deficits and issuance, while credit markets have remained robust—but increasingly selective.Other calls are more mixed: The US has outperformed, but eurozone manufacturing weakness has been less pronounced than expected; non-US equities have shown promise, but leadership remains uneven.As we explain in the pages ahead, we believe the old investment order is giving way to one that is more fragmented, physical, and selective. Geopolitical and economic fault lines are pushing governments and companies to prioritise security over efficiency. A revival in global manufacturing is complicating the inflation fight just as central banks had hoped to ease more decisively. The energy shock has exposed supply chain fragility and accelerated the push for energy security and diversification.At the same time, AI is moving from the digital economy into the real economy. The opportunity is no longer confined to a narrow group of platform companies; it is spreading into power, infrastructure, cooling, connectivity, construction, and industrial capacity. That shift is helping loosen the grip of benchmark concentration and create a more dispersed opportunity set.In short, macro is back. This is not simply a more volatile version of the last cycle. It is a different market environment—one in which capital intensity, supply security, policy support, and earnings durability matter more. For investors, the challenge is no longer just identifying growth. It is identifying which companies, sectors, and economies can turn a more demanding world into better returns.