The W1M Investment Barometer – April 2026

The global economy and markets are inevitably impacted by increased uncertainty and higher oil prices resulting from conflict in the Middle East.  The charts below show how sharply the numbers of tankers exporting oil  from the Middle East has fallen; the resultant negative impacts on inflation and growth are clear. OECD forecasts show the UK and Euro area expected to stagnate with growth rates under 1% but the US and Emerging Markets to do better. Inflation, while higher, is still at relatively manageable levels. A longer conflict would probably worsen this picture; the hope in markets seem to be that a shorter conflict would allow the global economy to recover and avoid stagflation.

Iran conflict: global economic impact

Strait of Hormuz commercial vessel crossings - year-to-date

Source: OECD. Data as at 26 March 2026

OECD G7 2026 Growth and Inflation Forecasts

Source: OECD. Data as at 26 March 2026

The key question for markets has been about how long the war would go on. Having fallen as conflict escalated, equities have this month started positively, expecting some sort of peace agreement to be agreed. While short-term market movements may react positively to better news, and then go the other way if it worsens again, perhaps the more important market issue should be about the longer term impact on inflation and interest rate expectations.

Inflation and interest rates

Energy prices are far higher now than before conflict started in the Middle East . Even when oil prices fall on days when a peace agreement looks more likely, those prices are still significantly above levels which existed pre-conflict.  Inflation is, therefore, obviously, going to be higher than hoped, as a result, central banks are now more constrained with regard to cutting interest rates. It also means consumers are facing an intensifying “cost of living crisis”. A weaker consumer means weaker growth. Combined with higher than expected inflation, that means the risk of “stagflation” is real. Weak growth with rising inflation, constraining the ability to cut interest rates, could obviously be challenging for both equities and bonds.  

Rate cut expectations have been priced out

UK CPI Inflation Swaps (%)

Source: Bloomberg, W1M. Data as at 31 March 2026.

Market Implied Policy Rate Change by Dec-26

Source: Bloomberg, W1M. Data as at 31 March 2026.

Markets have gone from expecting interest rate cuts to anticipating central banks having little room to cut rates now. Central banks may try to look through a short-term energy price spike causing inflation but that could still mean not cutting rates or even making small hikes; the Bank of England was expected to cut rates perhaps twice by the end of the year but today markets price in a hike of around 25bps in that time frame. The US may still be able to cut rates; being self-sufficient in energy, the US economy appears more resilient than its developed market peers but that does not mean US voters will be happy about their gasoline prices rising sharply; ironically, having far less tax on petrol at the pumps means that US consumers see a sharper rise in “gas” prices when oil prices rise. The US gasoline price may be a key factor in the conflict ending sooner rather than later if American politicians fear the verdict of the voters in their autumn elections on their rising cost of living; voters tend not to care much if they are relatively better off than people in other countries.

Global equity earnings growth

As mentioned above, expectations for global growth remain positive and inflation, while higher, is not, at this point, forcing major interest rate increases even if hopes for interest rate cuts have been dashed. With that background, markets expect company earnings to remain robust and that is a key reason behind markets being resilient in recent months. The corporate sector globally is going into more uncertain economic times but in relatively robust condition. Valuations are still high for some companies but for most companies in the US and the rest of the world, it remains the case that valuations are not stretched (as the first and second columns of numbers in the table below show). While global earnings growth may remain robust, the environment ahead,  with interest rates not being cut and the key S&P500 index having around a third of its market cap dominated by a relatively small number of stocks, is likely to favour active stock selection.

2026 global earnings growth estimate +20%

+18% for the US in 2026; +22% for the Rest of World in 2026

Earnings per share calendar year growth rate

Source: MSCI, FactSet, W1M. Data as at  13.04.26

Could  the current environment be negative for passive funds?

There has been a strong run in equities for a long period and that always makes passive investing look successful, but passives do not always outperform. When, for example, some stocks become very successful and large in market capitalisation terms, equity indices go up and passive strategies can do well. Momentum can dominate fundamentals for a long time. However, in other periods, particularly when inflation is resurgent and markets are disappointed by the direction of interest rates, equities and bonds can fall together; this is damaging for passive “60-40s”. While they are normally expected to be diversifying, perhaps just when diversification is needed most, equities and bonds can be correlated, and both deliver negative returns; this was seen in 2022 when higher inflation surprised markets. The chart below shows how a passive strategies can have very long periods when they deliver negative real returns; this may surprise many. It is easy to look at a long-term chart and say the shorter term does not matter but how long is the “short term? There have been long periods of passive strategies potentially being disappointing, such as post the dotcom crash and in the 1970s, in which investors would have been “underwater” for many years. This underlines the need to be more diversified than just holding equity index exposures and bonds in times of greater inflation risk.

Passive 60/40 portfolios have endured 6 "lost decades" since 1900; could we be entering no. 7?

Source: BofA, Bloomberg. As at 31.12.25.  Note: 60/40 = 60% S&P 500 real total return and 40% US 10-year bond real total return

Risk warning: Past performance is no guarantee of future results.

Real Assets 

Inflation resilience are a key reason to diversify portfolios with the inclusion of real assets. As production costs rise, for example, metals prices tend to rise as supply tends to fall if mining becomes loss-making. W1M has real assets exposure in metals, infrastructure, property and other assets. Gold may get more attention than other real assets sometimes; it got to a record high of $5,417 per Troy ounce on January 28 this year but then dropped by $750 in three trading days before rebounding. It is around $4,900 in mid-April. We took some profits in gold and gold miners in January but remain invested and still convinced regarding its long term structural attractiveness. These include concerns about currency debasement (money printing)given high levels of government debt in developed markets. In particular, some fear that the US dollar could weaken further and while the global reserve currency being weak  can stimulate  global growth, it can also make gold (an alternative store of value) look more attractive. The chart below shows that gold is not necessarily expensive relative to equities despite having had a good couple of years.

Gold price per troy ounce relative to S&P500 Index price - 1971 – current monthly

Source: Bloomberg, W1M. As at 17.04.26

Summary

As shown above, if the middle east conflict ends sooner rather than later, as markets seem to expect, the global economy will have been damaged but, perhaps could hope to recover relatively robustly. Global equities are going into a period of increasing uncertainty with strong company earnings growth; equity markets have been resilient as a result. There is, however, no permanent peace agreement yet. With this environment, we are content to be around neutral in equities, utilising proprietary protection strategies to mitigate any further market stress should it arise. Given inflationary pressures are stronger now with much higher energy prices globally, we remain underweight fixed income. Inflation resilience from real assets, including gold, remains attractive to us. In an environment with “stagflation” risks, we believe that being global and active is key both in terms of controlling risk as well as in finding attractive medium and longer-term investment opportunities.

Asset Allocation Positioning

April 2026

Hedging includes Protection Strategy 1 & 2

The table shows bond allocations relative to bond composite index