What’s driving markets right now?

As we move through June 2026, investors are facing a mix of robust company results, sticky interest rates, and ongoing geopolitical uncertainty. In this month’s market update, Ian Slattery, Head of Investment Solutions at Zurich, shares what’s been driving markets and how we’re positioning portfolios for the second half of the year. *This vodcast was recorded 10^th June 2026.

The three big themes driving markets

Over the last six weeks, three core themes have dominated the market narrative:

1. Strong corporate earnings: Q1 earnings, reported through April and into May, have been broadly robust:

• Many companies delivered results ahead of expectations.
• Earnings strength has provided a key support for equity markets.
• Investor sentiment has been helped by solid balance sheets and healthy cash flows.

This earnings backdrop has underpinned the positive performance in several major indices.

2. Higher for longer interest rates: The expectation that interest rates will remain elevated for longer has become central to market thinking:

• Central banks continue to prioritise inflation control.
• Rate cuts are expected to be gradual, not aggressive.
• Higher yields are weighing on bond prices and some rate‑sensitive sectors.

For investors, this environment reinforces the need to be selective in both equities and fixed income.

3. Persistent geopolitical uncertainty: Geopolitics remains a constant background risk:

• The conflict in the Middle East continues, particularly around the Straits of Hormuz.
• While immediate market reactions have calmed compared to earlier in the year, risks remain embedded in areas like energy.
• Markets are also starting to look ahead to US political developments later in the year.

Asset class overview: Equities, bonds and commodities

When it comes to equity markets, Artificial Intelligence (AI) is still firmly in the spotlight. Equities had a strong May, supported by earnings momentum and the ongoing enthusiasm AI:

• AI remains a key structural theme, attracting significant capital.
• Anticipated IPOs from high‑profile names such as SpaceX, OpenAI and Anthropic are sustaining interest in the broader innovation story.
• The US market continues to lead globally, with positive contributions also from Japan and Australia.

While AI offers long‑term opportunities, we are also mindful of the risk of ‘pockets of exuberance’ in certain parts of the market.

Fixed income: Opportunities with caution

Higher interest rates have created a more attractive income environment but also challenges:

• Bond prices remain under pressure from the ‘higher for longer’ rate outlook.
• Yields on US treasuries and German Bunds are relatively elevated.
• Central bank meetings from the Federal Reserve and the ECB are closely watched for any change in tone.

We see opportunities in fixed income but are cautious on interest rate sensitivity.

Commodities: Volatile but important

The commodity complex has been volatile, particularly in energy and metals.

Gold: Has struggled recently as inflation expectations have ticked up. But gold still plays a diversifying role in long‑term portfolios.

Copper: Remains central to industrial activity and is increasingly important for electric vehicles and AI‑related infrastructure. Demand is supported by the ongoing energy transition and data centre build‑out.

Oil: Prices remain relatively high due to tensions around the Straits of Hormuz continuing to influence pricing. Supply concerns keep a risk premium in the market and for euro‑based investors, oil moves are especially relevant when translated back into local currency terms.

Currencies: A quieter year for EUR/USD

The foreign exchange market has been comparatively calm:

• EUR/USD has seen less volatility than in 2025.
• The US dollar has shown some resilience.
• The euro has been relatively stable, offering a degree of predictability for globally diversified investors.

This stability helps reduce one layer of uncertainty in international portfolios.

Looking ahead: Key risks and our current positioning

As we move into the second half of 2026, we are focused on a few key risks and opportunities.

What we’re watching

• US elections: Political developments later in the year could bring periods of volatility.
• AI valuations: We are alert to segments of the market where optimism may have run ahead of fundamentals.
• Central bank policy: Any shift in the pace or tone of rate cuts will be critical for both bond and equity markets.

Our asset allocation stance

Against this backdrop, our current positioning reflects a balanced but cautious approach:

• Equities: Neutral to slightly underweight.
• Bonds: Positive, with a focus on careful duration management.
• US market: Cautious stance, given high valuations in some segments.
• Cash: Underweight, as we prefer to stay invested in selected opportunities.

We continue to believe active management is essential in an environment where index performance can be driven by a narrow group of names and where macro conditions can change quickly.

What this means for your portfolio

For long‑term investors, the message is one of measured optimism:

• Earnings remain supportive.
• Bonds now offer more compelling income than in many years.
• Structural themes like AI and the energy transition provide long‑term growth potential.

At the same time, elevated rates, valuations in certain sectors, and geopolitical risks call for careful risk management and diversification.

Our investment teams at Zurich Life are actively monitoring these developments and adjusting positioning where needed to help keep your portfolio aligned with your long‑term goals and risk profile.