As a result of the conflict with Iran, the Strait of Hormuz was effectively closed for almost four months. This led to higher energy prices, rising inflation and increasing interest rates. Nevertheless, by mid-June the global equity index (MSCI All Country World Index) is up 12% in US dollars and 13% in euros (total return). This means our full-year return expectation for 2026 of 6% (in US dollars) has already been comfortably exceeded.
"}},{"componentType":"sectionTitle","title":"AI continues to drive earnings growth"},{"componentType":"paragraph","richBody":{"value":"Much stronger-than-expected quarterly results, particularly from (US) technology companies, have been the key support for global equity markets. The continued strong growth in AI and favourable outlooks have especially driven IT stocks higher. Within this sector, semiconductor companies in particular have benefited from unprecedented demand for (memory) chips. Corporate earnings have increased far more than expected, and the outlook for AI-driven growth remains strong, resulting in significant share price gains. In addition, oil companies have benefited from higher oil prices. Return differences across regions and sectors – as well as within sectors – have been particularly pronounced so far this year.
"}},{"componentType":"sectionTitle","title":"Valuations decline due to strong earnings growth"},{"componentType":"paragraph","richBody":{"value":"Strong equity returns have therefore been driven by significant upside surprises in (expected) earnings. In the first quarter, companies in the US S&P 500 Index delivered average earnings growth of nearly 28% – more than double the 12% expected beforehand. The 10% earnings growth of companies in the Stoxx Europe 600 Index also exceeded expectations. As a result, analysts have raised their earnings growth forecast for companies in the MSCI All Country World Index for 2026 from around 15% to 26%. For 2027, expected earnings growth has been revised up from 13% to 16%.
Because average corporate earnings have grown faster than the global index, equities have effectively become cheaper this year: average valuations (price-to-earnings ratios) have declined, both on a trailing twelve-month basis and based on expected earnings for the next twelve months. This represents a notable shift compared with the previous two years.
"}},{"componentType":"sectionTitle","title":"Earnings continue to grow, valuations likely to ease"},{"componentType":"paragraph","richBody":{"value":"We expect a modest slowdown in global economic growth to around 3% this year, alongside a further increase in inflation through to the third quarter. At the same time, support from central banks is fading: the European Central Bank (ECB) has already raised rates once and is expected to do so again in the third quarter. We do not expect any rate cuts from the US Federal Reserve this year. Against this backdrop, nominal corporate earnings – including inflation – may continue to grow.
However, higher government bond yields are likely to put pressure on valuations (price-to-earnings ratios). The high valuation of US equities is expected to moderate, weighing on the overall valuation of the global index. Earnings growth among leading technology companies will remain strong, but is likely to slow and gradually converge towards the market average by 2027. US equities represent by far the largest share of these technology companies and account for around 70% of the global equity market. In addition, the success of several large IPOs – following SpaceX, with Anthropic and OpenAI expected later this year – will also influence market sentiment.
"}},{"componentType":"sectionTitle","title":"Limited upside for the global index"},{"componentType":"paragraph","richBody":{"value":"So far, the consequences of the conflict in the Middle East have had limited impact on several key equity sectors. Nonetheless, we remain cautious about expected equity returns for the remainder of the year. Higher interest rates and slower economic growth are likely to weigh on corporate earnings.
Against the backdrop of reasonable economic growth in key regions (the US and China), but a slowdown in the eurozone, we have raised our earnings growth forecast for 2026 for MSCI All Country World Index companies from 10% to 18% in nominal terms (including inflation). Compared with the average analyst expectation of more than 26%, our forecast remains on the conservative side, also for the second half of the year. For 2027, we have revised our earnings growth forecast up from 8% to 12%, which also remains below the consensus expectation of over 15%.
Assuming a price-to-earnings ratio of 18 times expected 2027 earnings by the end of 2026 (currently 17.7 times next twelve-month earnings), this results in a projected level for the global index of 1,100 points by the end of 2026. Including approximately 1% dividend yield, this implies limited further upside in equity markets for the remainder of the year. This excludes currency effects: for euro-based investors, movements in the US dollar may have a positive (stronger dollar) or negative (weaker dollar) impact.
"}},{"componentType":"sectionTitle","title":"Listed real estate driven by AI and interest rates"},{"componentType":"paragraph","richBody":{"value":"Listed real estate performed well in the first half of 2026, delivering a return of 9% (in euros). US real estate stocks in particular, which have a large weighting in the global index, performed strongly, supported by a somewhat stronger US dollar and solid returns from AI-related real estate (data centers). In our baseline scenario, we expect higher long-term interest rates in the US, which we believe will limit further upside for global listed real estate.
"}},{"componentType":"sectionTitle","title":"Active management is key"},{"componentType":"paragraph","richBody":{"value":"As outlined above, our return expectations for the remainder of 2026 are moderate. Much of the positive news is already priced into markets. Strong earnings growth has meant that, despite rising share prices, equities have not become more expensive on average. However, due to rising government bond yields, the equity risk premium declined further in the first half of 2026, to its lowest level in at least 20 years. To justify further increases in equity prices, even stronger earnings growth would be required. In our view, this represents a significant challenge in the current economic and geopolitical environment.
This does not mean that equities cannot remain an attractive investment. The expected return reflects the average for the global index. Differences in returns between regions, sectors and individual companies within sectors are likely to remain substantial. Active portfolio management is therefore essential. Where we see the best opportunities can be found here.
"}},{"componentType":"sectionTitle","title":"What if our baseline scenario does not materialise?"},{"componentType":"paragraph","richBody":{"value":"As usual, we outline both a positive and a negative economic scenario alongside our baseline scenario.
In the positive scenario, both economic growth and inflation would surprise to the upside relative to the baseline. This is particularly relevant for the US, where inflation is less directly linked to energy prices and more driven by strong demand for goods and services. In regions such as Europe and Japan, where economic growth could benefit from lower energy prices as the Strait of Hormuz reopens, inflation could ease somewhat.
In such a scenario, earnings growth expectations for listed companies would be significantly more positive. We would also expect investors to be willing to take on more risk and pay slightly higher valuations. Equity returns could then reach around 18% (in US dollars), although we consider this outcome unlikely.
In the negative scenario, the opposite would occur. Equities would be negatively impacted by declining corporate earnings and lower valuations. In this case, equity markets could fall by around 18%. We also assign a relatively low probability to this outcome.
"}},{"componentType":"sectionTitle","title":"Do not rely too heavily on forecasts"},{"componentType":"paragraph","richBody":{"value":"As history has shown, forecasting financial market performance is far from straightforward. Our estimates should therefore be interpreted with caution. For us, as international investors, considering different scenarios provides useful guidance in shaping our outlook and investment strategy. At the same time, we continuously reassess our baseline scenario in light of new developments. The world remains in flux: geopolitical tensions are clearly higher than in recent years and can periodically trigger significant market volatility. It is therefore important to remain calm and not be driven by emotion. You can read where we see the greatest risks here.
"}},{"componentType":"sectionTitle","title":"Neutral Allocation to Equities and Bonds"},{"componentType":"paragraph","richBody":{"value":"Based on our current outlook, in our tactical asset allocation for ING investment portfolios we maintain a neutral allocation to equities and bonds as of June. Listed real estate, commodities and alternative investments also have a neutral weighting within the portfolio. If you want to stay informed about our current outlook and positioning, read our monthly Market Outlook.
"}},{"componentType":"linkList","iconTitle":{"title":"Read more"},"textLinks":[{"text":"Midyear outlook 2026: Homepage","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-home"},{"text":"Midyear outlook 2026: Fixed income","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-fixed-income"},{"text":"Midyear outlook 2026: Opportunities","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-opportunities"},{"text":"Midyear outlook 2026: download PDF","url":"https://assets.ing.com/m/7dfc82cb56e72468/original/Investment-Outlook-2026.pdf"}]},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. The value of your investment may fluctuate. Past performance is no guarantee of future results. Read more about the risks of investing.
This publication has been prepared on behalf of ING Bank N.V. and is intended for information purposes only. ING Bank N.V. obtains its information from sources deemed reliable and has taken the utmost care to ensure that the information on which it based its views in this publication was not incorrect or misleading at the time of publication. ING Bank N.V. does not guarantee that the information it uses is accurate or complete. The information contained in this publication may be changed without any form of announcement. Copyright and data file protection rights apply to this publication. Data from this publication may be reproduced provided that the source is stated. ING Bank N.V. has its registered office in Amsterdam, commercial register no. 33031431, and is regulated by the Dutch central bank De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM). ING Bank N.V. is part of ING Groep N.V.
"}}]},"hasMacro":false,"id":"a6deb30d-0dd4-48e7-a0a5-ef6a60026e90","localeString":"en-GB","mainHeaderZone":{"backLink":{"textLink":{"text":"Market news and views","url":"/en/personal/investing/market-news-and-views"}},"componentType":"productHeader","coreHeader":{"body":"Our return expectations for the remainder of 2026 are moderate, as much of the positive news is already priced into markets. Strong earnings growth has kept valuations broadly in check despite rising share prices. However, higher government bond yields have pushed the equity risk premium down to its lowest level in at least 20 years. Further gains in equity markets will therefore require even stronger earnings growth — a demanding condition in the current economic and geopolitical environment. While this tempers upside potential, equities can still offer attractive opportunities.","headerImage":{"extension":"jpg","original":"https://assets.ing.com/asset/c35eb54b-5554-4f3c-a6d9-4e93a336d7c1/Young-woman-floating-at-sea-against-clear-sky.jpg","transformBaseUrl":"https://assets.ing.com/transform/c35eb54b-5554-4f3c-a6d9-4e93a336d7c1/Young-woman-floating-at-sea-against-clear-sky","type":"image","width":3264},"subtitle":"How much upside is left in equity markets?","title":"Mid-Year Outlook 2026: Equities"}},"publishDate":"2026-07-21T14:20:06.043+02:00"}}