Investors hoping for a calmer second half of the year are likely to be disappointed, according to experts, who have warned that the macroeconomic picture looks as uncertain today as it has for the entirety of 2026 so far.
As a result, between now and 31 December uncertainty and volatility is likely to remain the key word.
Notable macroeconomic and geopolitical events in the first half of the year included the outbreak of war in the Middle East, a fresh round of US tariffs, the rise of AI technology and stubborn inflation.
None of these are expected to be easily resolved in the second half, but there could be some silver linings on the economic front. Below, market experts laid out what they expect for the rest of the year.
The global economy
Market experts expect global growth to hold up in the second half of 2026, even as risks build from a potentially overheating US economy, a lagging eurozone and continued geopolitical shocks.
Lisa Wang, head of EMEA investment strategy at Franklin Templeton Investment Solutions, said: “Global economic activity has been resilient and manufacturing PMIs remain expansionary across all regions, though momentum has softened since the start of the Iran war.”
The US is expected to remain the main engine of global resilience, supported by strong corporate earnings power from the biggest players in the AI build-out.
However, dispersion is a potential issue. Where the US has proven resilient, “the euro area is the laggard, with leading indicators weakening more than elsewhere on high energy costs and structural weakness in Germany”, Wang added.
Her central view nonetheless is continued steady, resilient macro growth supported by strong corporate earnings power over the second half of the year.
Tariffs
US tariff uncertainty looks set to run through the remainder of 2026, even as businesses and supply chains adjust to the levies.
Trump rounded out the first six months of the year by imposing a fresh round of levies on more than 80 countries. These fall under Section 301 of the 1974 Trade Act, which is aimed against countries engaging in forced labour.
Guy Monson, chief market strategist at Sarasin & Partners, said US tariff revenues are “well below the levels envisaged in Trump’s original Liberation Day proposals, as much of the burden has been absorbed by America’s trading partners, with only a modest impact on economic activity”.
Indeed, while the US collected around $165bn in Liberation Day tariffs, almost $100bn has since been refunded, following the Supreme Court’s decision in February that many of these tariffs were unlawful and should be paid back.
However, the continued uncertainty surrounding tariffs is unlikely to lessen in the second half of the year.
Wang said: “Repeated announcements, litigation, shifting exemptions and the use of multiple statutory authorities create an environment in which businesses delay capex, hiring and sourcing decisions.”
Refunds will provide a near-term cashflow buffer for importers – “though that is a one-off payment against a recurring cost”, she added.
Geopolitics
There is no end in sight for the conflict in the Middle East, with tensions over the Strait of Hormuz and access to oil likely to keep energy prices elevated in the weeks and months to come.
Guillermo Felices, global investment strategist at PGIM, said geopolitical developments have “clearly increased” downside risks compared with the start of the year.
“Higher oil prices have become a central macro consideration and are influencing growth, inflation and monetary policy expectations across regions [while] fiscal sustainability and central bank credibility have become increasingly important market themes,” he said.
Monson warned that fragmented and less efficient global supply chains in the face of continued uncertainty are also likely to leave inflation higher and more volatile.
“National security concerns will encourage countries to localise critical infrastructure and intellectual property rather than depend on geopolitical rivals,” he said.
Europe’s vulnerability to higher energy prices, due to its dependence on imported oil and gas, has prompted Wang to remain underweight eurozone equities.
Beyond the Middle East, US domestic politics ahead of the Midterms in November is also a live variable.
Interest rates
Market experts warn that developed central banks are likely to hold or even hike rates over the ensuing months to keep inflation in check – a sharp reversal from the start of the year when markets were pricing in cuts.
Felices said: “In the US, we expect the Federal Reserve to raise rates from 3.75% up to three times this year.”
He also expects the European Central Bank to raise rates further as energy and food price pressures filter through the economy. In June, the central bank upped rates to 2.25%.
In contrast, Monson predicted the Fed will keep rates at 3.75% until at least mid-2027. “However, if growth continues to surprise on the upside, further rate increases cannot be ruled out,” he noted.
Turning to the UK and Monson, Wang and Felices expect the Bank of England to hold rates steady until mid-2027.
Wang said: “Tight financial conditions and a weak labour market mean the UK would struggle to sustain a prolonged hiking cycle even if one precautionary increase becomes necessary.”
Across other regions, Wang is forecasting central banks to be relatively dovish versus market pricing as, should the Middle East conflict continue or worsen, supply-driven energy inflation will do more demand destruction than is currently priced, which in turn reduces the likelihood that central banks will deliver the hikes markets expect.
Base cases
Ultimately, experts expect the second half of 2026 to play out similarly to the first six months, albeit with more uncertainty baked in.
Felices’ base case remains “broadly constructive”, although he said they have raised the likelihood of mild stagflation in the US due to higher energy prices and geopolitical risks. Similarly, in Europe, the firm has shifted some probability from an overheating scenario towards stagflation.