2026 midyear outlook: Takeaways from our ‘resilience endures’ webinar

So much has happened in the first half of 2026, much of it disruptive. Artificial intelligence continued its meteoric rise threatening to upset the course of business on a global scale. The Strait of Hormuz closed to shipping traffic which drastically curtailed energy and commodity supplies. However, disruption seems to have bred resilience. The market pushed upward, and the global economy continued to move forward.

Invesco’s midyear outlook webinar, ‘A world disrupted? Resilience endures,’ hosted by Head of UK Distribution, Kate Dwyer, looks back at the year so far and looks ahead at what may be to come.

Experts from our investment teams — including fixed income, equities, and private markets — examine the macro view and then dive into the various asset classes. What has and hasn’t changed about our 2026 outlook? Where might the market be headed?

Read our key takeaways for highlights and watch the webinar replay to see the full conversation. (Passages below have been edited for length and clarity.)

Macroeconomic outlook

The 2026 investment outlook painted an optimistic picture, one of accelerating global growth and more accommodative policies for central banks. A lot has happened in the first half of 2026. Is that outlook null and void?

Ben Jones, Global Head of Research, Strategy & Insights: No, I don’t think it’s null and void. I think there’s a lot in that year-ahead outlook that we put together that still very much holds today.

Markets and economies have been remarkably resilient. So, economic growth continues. US equities have performed better since the end of February — since the beginning of the Middle East conflict — than we had anticipated. Emerging markets, which is one of our favorite places in that year-ahead outlook, performed very well since the end of February as well.

For central banks, we expected some moderation in inflation and then easing in central bank policy, particularly from the Federal Reserve (Fed) and Bank of England. But the situation has changed. Now we’re more likely to see central banks hold for longer. Private sector resilience is central to this argument.

Can you add historical context to the recent energy shocks?

Paul Jackson, Global Market Strategist: Everybody thinks about the 1970s when they think about energy shocks. Those energy shocks led to a period of stagflation, which is quite a frightening prospect. But we’re in a very different situation today.

• First, the oil price hasn’t risen by anything like what it did back then. Then, the oil price tripled. Today, it’s up less than 50%.
• Second, we’re much less reliant on oil than we were in the 1970s. My guess is that we’re about a quarter as reliant on oil at the global level.
• Third, countries have built up big inventories of oil. International Energy Agency countries had 140 days’ worth of net oil imports in their reserves at the start of 2026.

The global economy has continued to expand. The indicators, leading indicators, and purchasing manager indices have moved in the right direction. We haven’t seen a drop off in economic activity, which is key to stock market performance.

How do you think about the longer-term outlook around central bank policy and dollar weakness?

Ben: We’re in a more inflationary environment over a longer period of time, which means we’re not going back to the zero level of interest rates that we had in the post-global financial crisis period.

But I don’t think we need rate hikes now. And I don’t think the Bank of England will hike this year. If they do, it will be one at most. The data in the US shows inflation and core inflation creeping higher with a relatively resilient labour market. This suggests the policy will remain on hold this year. 

What are you thinking about from an asset class and regional perspective?

Paul: We’re assuming that the Strait of Hormuz will open over the coming months and the world won’t be thrust into energy shortages. With the global economy likely accelerating, our focus remains on the more cyclical, riskier assets. We favour asset categories such as equities, industrial commodities, and real estate at the global level.

But balance and diversification are generally wise. Assets at the other end of the risk spectrum with limited duration risk and attractive interest rates can serve the purpose. Triple A-rated collateralised loan obligations (CLOs) — a sort of cash-plus type of asset — and bank loans have worked during recent periods of volatility.

Looking across all assets, we’re still focused on emerging markets. The valuations are good. There’s a lot of AI trade. In my view, if we get the upswing we expect, Europe will benefit. The Japanese equity market is also performing pretty well thanks to AI.

Ben: It’s very interesting what we’ve seen with the dollar this year. We came in thinking the dollar would weaken. It’s been up a little bit. However, an energy crisis far away from the US should normally be very positive for the dollar, and it hasn’t been. That’s very telling.

Our base case — normalisation in the Middle East — is an environment where the dollar may weaken. That will very much favour non-US assets over US assets going forward.

I’m getting a lot of questions lately about Japanese equities. And I think that’s a great place to be. There’s actually a bit more dynamism in the Japanese market now.

There are lots of opportunities out there.

What could disrupt this outlook and change how you’re thinking about the next six months?

Paul: The obvious one is that we’re wrong about the duration of the closure of the Strait of Hormuz. If that continues throughout the year and into 2027, it will probably start to affect economies. We’ll start to see energy shortages, which will automatically squeeze economic growth. It will reduce economic size and bring recession. Higher inflation is also a risk. That’s a difficult environment for investors. Few assets perform well in that sort of environment.

This is where commodities give you diversification. While the commodities cause the problem, if you’re holding them, you’re in some ways benefiting from that price rise.

Direct real estate is another asset category that can add some diversification. It offers some mitigation against inflation with low correlation to other assets. So, there’s a diversification element there.

Ben: If the Strait of Hormuz doesn’t reopen, then there’s going to be some form of forced demand destruction at some point.

The other major issue is the AI trade. Can this CapEx cycle continue? Is the lending getting out of hand? What’s happening with IPOs, is that a red warning flag signaling the top? I think there’s more room to go. More AI spending is coming, and, to a degree, it can be monetised.

There are risks out there that this can be derailed. Much of the reason emerging markets have performed so well is stellar earnings growth. MSCI Korea, for example, has consensus forecasts for about 200% earnings growth this year on the back of this insatiable demand for memory.

The markets have an adage that the cure for high prices is high prices. So, more memory supply coming out of China or other companies in South Korea could put downward pressure on prices. If big hyperscalers scale back, that could send some of this into reverse as well. That could be a negative for markets.

The wealth effect could factor in too. While households have been resilient, a lot of that is on the back of high markets, where net worth has been built around the world. That could go into reverse.

These are all risks, but not the base case. 

Fixed Income

How has the bond market behaved since the outbreak of the Middle East conflict? What are you looking at as a bond manager as the situation continues?

Thomas Moore, Global Head of High Yield: The impact has been different in different corners of the market. The government bond market has reacted negatively, which reflects elevated inflation expectations and worries about the fiscal steps that governments might take to offset higher energy prices.

Risk assets within the bond markets — corporate bonds and high yield bonds — have behaved. We’ve seen relatively little volatility and spread. In terms of opportunity, we believe there’s good hunting to be had in that corporate corner of the bond market. We believe if you go longer out the government curve, there’s better value than there was a few months ago. But I expect that the volatility we’ve seen is going to persist for some time.

How are clients positioning, and how are they reacting to the market conflict?

Ralph Stern, Global Head of Fixed Income Portfolio Management for ETFs and Index Strategies: Clients aren’t staying on the sidelines, that’s for sure. If we look at the March-April peak of volatility, we’ve seen average daily volumes on UCITS fixed income ETFs in the secondary market peak at around 4 billion. That’s twice the average daily volume of around 2 billion in flows.

Where has it happened? We’ve seen most flows go into Euro cash, about 8 billion net new assets since the start of the year. But since the conflict in the Middle East, we’ve seen a pickup in flows into Euro govies. Interestingly, it’s not on the front end but across the curve. Those flows are going into euros and not into dollars. It’s more effective to buy euros.

Have you been surprised at the resilience in the credit market? If the energy shock continues, how long do you think that resilience can last?

Thomas: We’ve been surprised with just how solid credit has been. And that’s partly because certain sectors of the market have benefitted from this energy shock. European chemicals has benefited as capacity has gone offline in the Middle East and Asia.

Broadly speaking, a lot of money wants to be put to work. Investors seem quite keen to buy dips. If this conflict goes on much longer without a resolution, then we risk a real spike in oil that could damage markets generally. Personally, I believe that would be quite short-lived. But it’s the main risk over the next month.

Ralph: Fundamentals are fairly strong from a balance sheets perspective. Technicals are strong in the primary market. When we’re assessing deals, there are premiums and those deals are oversubscribed. Investors are interested in putting money to work.

Where, as an active manager, are you finding opportunity?

Thomas: One of the sectors that suffered the worst has been transportation. We’re looking for good companies that have been beaten up in the market, selectively within autos. There’s still good value to be had in chemicals. The market is rich with opportunity.

What about from an ETF perspective?

Ralph: I’m thinking of high-quality issuers going down in subordination for a bit of a yield premium that you can pick up. Recent data has also shown record inflows into triple-A CLOs, variable-rate preferred shares, and bank loans.

Equities

Can you discuss the potential appeal of option strategies to investors who still want equity exposure but are concerned about the downside risks?

John Burrello, Senior Portfolio Manager: Today’s environment can be characterised by uncertainty. The geopolitical environment is causing inflationary pressures. Oil prices are rising around the world. At the same time, AI is creating exciting technological developments.

We believe investors shouldn’t abandon equities and that staying invested is very important. But how do you ride out the volatility and live with the uncertainty?

This is where option-based strategies can come into play. Having a diversified portfolio is important. But we believe option-based strategies can also offer structural risk mitigation. Built-in contractual risk reduction can help manage portfolio risk another way. Diversifying your defensiveness with options can help reduce volatility and manage uncertainty in the markets.

In this environment, what option strategies are seeing the most client demand?

John: Global Strategies manages option-based strategies in two main buckets: hedging or income-based strategies. Hedging for downside risk mitigation is seeing increased demand, but option-based income strategies for risk reduction are seeing even more.

Clients can stay invested in equities but reduce some risk by 20% to 30%, with less volatility and fewer drawdowns. Clients can add a source of monthly income that’s not interest rate sensitive. Collecting income without the sensitivity to central bank activity or rate volatility while staying invested in equities has been appealing to clients.

What are the various use cases for option strategies, and what role do they play in portfolios?

John: The most common way our clients use them is if they’re already invested in the equity markets in core trusted benchmark-type exposures but want to take some of that risk out of the market. Contractual, option-based structural risk mitigation is an intermediate step that, we believe, can reduce risk directly. That’s been quite appealing.

Another way that we’re seeing investors use option income strategies is a barbell approach. They might take some of the allocation from fixed income — reducing risk to interest rates by reducing fixed income exposures — and some of it from riskier equity exposures and combine those funds into an option income portfolio.

Private markets

Should European investors be excited about private credit opportunities and if so, where?

Raman Rajagopal, Head of ETF Portfolio Management: You’ve seen a lot of negative coverage around the topic of private credit. But most of that coverage has focused on deals that were historically done in the large end of the US direct lending market. We didn’t do any of those types of deals, like the software transactions that are under a lot of scrutiny today.

We’re actually very excited about what we’re seeing in the market going forward, and for European investors, particularly the European opportunities.

The first thing I’d note about the direct lending space is that it’s entirely floating rate. So, when we think about interest rate policy, our asset class benefits from the fact that we minimise interest rate duration risk. The European direct lending deals, particularly the larger deals, have held up incredibly well.

When we look at the new deals, we see very strong relative value compared to other markets like the US direct lending markets. Positioning is also interesting. In European direct lending, investors can tilt towards the larger borrowers, which lets you lower your credit risk profile with attractive spreads in the market.

Where should investors be thinking about the real opportunity in real estate?

Mike Bessell, Managing Director, European Investment Strategist: Investing immediately after a value correction has historically driven outperformance. What we’re seeing now is a reduction in transaction volumes. And for those who can act, we’re seeing attractive opportunities to get assets that we like to hold for the longer term, taking advantage of motivated sellers.

We’re focusing on income, income growth, and the returns we can drive through active management of assets. That plays to both the equity and the debt side of the spectrum, focusing on that income in the equity piece. Those higher interest rates also give very attractive returns from a real estate debt perspective. We’re able to use our real estate underwriting knowledge to find attractive, longer-term opportunities, focusing on that income generation piece and trying to immunise ourselves from the sensitivity to interest rates going forward.

Are there any other areas within private credit that investors are starting to consider more seriously?

Raman: One of the areas that’s been interesting is CLO. Previously, it’s been difficult to access the CLO market. But you’ve seen catalysts in the market where you can invest in CLOs through structures like ETFs and the triple-A and the like. Investors are now given more options. If they see a way to get a strong income relative to other types of credit risk, and do it with good downside risk mitigation, and that offers a lot of portfolio diversification, then that makes a lot of sense.

Investors are educating themselves on how those structures work so that they can get comfortable investing.

What are the key considerations investors are thinking about when looking at real estate now?

Mike: We’re seeing a move away from the traditional real estate problem, where a lot of investors would be globally diversified in liquid markets, but would have a very heavy home bias.

We’re highlighting to them the benefits of diversifying globally within real estate, diversifying across the risk spectrum, and diversifying again across the capital stack.

Investors need to think more globally and look beyond the traditional opportunities.

Digital assets

What is tokenisation?

Cassidy Cao, Digital Assets Associate Product: Tokenisation is the process of digitally representing ownership of real world and financial assets on a blockchain. For example, let’s take a money market fund. You can create a unique digital token to represent ownership of the fund. Now investors can invest in the fund, but directly through the blockchain.

What does blockchain give us that we don’t already have?

Cassidy: First and foremost, blockchain enables broader distribution and more direct access to financial and real-world assets. That means investors can participate digitally, but don’t need to rely on traditional distribution channels anymore.

Fewer intermediaries need to be involved, which reduces operational complexity. That means now you have instant or near instant transaction settlement as opposed to delays commonly associated with traditional clearing and settlement systems. That also means fewer parties taking a cut and cheaper transaction fees overall. Assets can be divided into smaller units, which lowers minimum investment thresholds and broadens investor participation.

Blockchain is a set of shared public digital records. There’s greater visibility across the asset lifecycle. Every transaction is recorded on the blockchain, and that’s public information.

What exactly is tokenisation, and how is it different from digital assets or cryptocurrencies?

Cassidy: Digital assets is a broad umbrella term that basically refers to any asset that’s on the blockchain, meaning an asset that has digital form and holds value. Cryptocurrencies and tokenised products are both subsets of digital assets.

Cryptocurrencies rely on cryptography and distributed ledger technology to secure transactions in a decentralised nature. Decentralised means no intermediaries are needed. So we’re thinking Bitcoin, Ethereum, Solana. And tokenised assets are the tokenised versions of financial and real world assets.

Bringing assets on chain brings benefits such as broader distribution, instant settlement, cheaper fees, fractional transparency and more.

How do you envision this really affecting our industry today?

Cassidy: We’ve seen the financial industry digitise over time with the goal of making money move more seamlessly. In the 1960s, everything was done on physical exchange floors with paper stock certificates. That led to the paperwork crisis, because there was so much investor demand, but they couldn’t move paper around nearly fast enough.

Electronic settlement followed up through the 1980s, which made the trade lifecycle faster, but still limited by the centralised nature. Investors put all their trust into a company where you can’t exactly see how your money is moving. It’s almost like a black box. Naturally, that’s where the need for tokenisation and digital assets comes into play. What investor wouldn’t want access to quick settlement, cheaper transaction fees, easier access, and greater transparency?

Why is this taking place today? Why is this moment important now?

Cassidy: Digital assets and tokenisation have existed for a while, but they’re no longer experimental. We’re seeing several key themes in the industry.

Regulatory frameworks are gaining traction and actively being implemented in jurisdictions globally. The US has the Genius Act, which guides institutional use of stablecoins. Blockchain infrastructure companies are meeting requirements for security and handling scalability.

Blue chip companies are actively becoming market participants. They’re integrating tokenised products and on-chain capabilities today to stay competitive. Tokenised assets are expanding beyond payments and money movement. We’re seeing a lot of interest in yield-bearing tokenised funds.

Digital money is actively being built on blockchain rails and will continue to become more complex.

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