The Keyridge Compass is designed to give a clear, monthly read on the fundamental backdrop behind our constructive stance on markets. This month’s talking points highlight how easing geopolitical risks, resilient growth and robust earnings are supporting risk assets, even as valuations, positioning and ongoing volatility call for a measured approach across equities, bonds, and credit.
June 2026 Talking Points
The Memorandum of Understanding between the US and Iran to end the conflict in the Middle East has significantly eased growth and inflation fears as the Strait of Hormuz has reopened leading to a sharp fall in oil prices back towards pre-war levels which has provided relief to markets, underpinning recent gains.
Despite war related uncertainty, growth has remained resilient with the bias to growth forecasts now viewed as being to the upside. The earnings backdrop remains robust with upgrades continuing and global earnings growth of 27% expected this year followed by 16% in 2027, levels typically seen coming out of recession, not mid cycle.
While valuations are still above long-term average levels, they now appear more reasonable having fallen 2 to 3 points from the October highs due to the strong earnings backdrop and represent a more attractive opportunity for investors. Investor positioning has risen from the March lows although is not at extreme levels at around the 60th percentile and allows for investors to increase exposures as the positive fundamental backdrop supports markets.
Our base case is that equities can rise double digits over the next twelve months with the ongoing AI theme providing additional support. Volatility however is likely to remain a feature as disagreements in US/Iran negotiations and uncertainty over inflation, growth, central bank policy and questioning of the benefits and pace of monetisation of AI could give rise to profit taking and short-term setbacks from time to time.
In bonds, the fall in oil prices, easing inflation fears and potential for less hawkish central bank policy stances being discounted can lead to a decline in yields although the firmer growth backdrop and likelihood that inflation will be higher than pre-war levels could limit the downside in yields. In corporate credit markets, spreads versus sovereign bonds are relatively low versus history with limited scope for further narrowing. Fixed income is attractive from an income perspective and would be expected to provide protection in a risk off environment or if growth were to disappoint.