Investors respond with relief to agreement between the US and Iran
The conflict in the Middle East has entered a new stage, after the US and Iran reached a provisional agreement to bring the conflict to an end. Investors are particularly relieved that the reopening of the Strait of Hormuz is part of the agreement. The supply of oil and gas from the Gulf region is expected to resume shortly, which led to lower energy prices. In anticipation of an agreement, the oil price had already declined in recent months; since the end of April, the price of a barrel of Brent oil has fallen by more than 35%. This is favourable for the energy bills of consumers and companies and also takes pressure off inflation.
Upward pressure on interest rates not gone, despite lower oil price
In response to the decline in the oil price, interest rates have also fallen. These had risen considerably since the start of the conflict, anticipating higher inflation. But after the first meeting of the US central bank, the ‘Fed’, under the leadership of new chairman Kevin Warsh, this quickly came to an end, especially in the US.
Because inflation in the US at 4.2% is well above the Fed target of 2%, half of policymakers are considering a rate hike this year. The explanation by Warsh also showed that the likelihood of a rate hike this year has increased. US bond yields then rose. The market is currently pricing in a rate hike of 0.25% for September. This is a significant change compared to the beginning of this year, when three rate cuts were still expected.
Equity markets supported by strong corporate results
The picture is different in the equity market. Equity investors had already been taking into account an end to the conflict in the Middle East since the end of March. In doing so, they were supported by quarterly figures and outlooks from companies, which on average were significantly better than expected.
This has led to new record levels for indices such as the S&P 500, Nasdaq Composite and Dow Jones, but also for the AEX. The largest increases in corporate profits were achieved by technology and other AI-related stocks. It is therefore not surprising that indices in which these have a relatively large weight have risen strongly. This also applies, for example, to South Korea, where the Kospi index – thanks to heavyweights Samsung and SK Hynix, both producers of memory chips – has already risen 100% this year.
This does raise the question of how much room there still is in the short term for further increases in the prices of (memory) chip stocks. The fact is that volatility in the prices of such stocks is increasing.
Chip stocks are the largest drivers of the equity market
First ECB rate hike since 2023
As a result of rising energy prices, expectations for central bank policy have changed clearly in recent months. Investors had already for some time been assuming a rate increase by the European Central Bank (ECB), and this month the time had come. The ECB announced the first rate increase since September 2023, in an attempt to tackle rising inflation. However, we should mainly see this rate increase as a symbolic step, with which the ECB wants to show that it wants at all costs to prevent being too late with its policy response. That was the case with the late response to the inflation shock in 2021 and 2022. For this reason, the main policy rate, the deposit rate, was increased by 0.25% to 2.25%.
The ECB also slightly revised inflation expectations upwards – to 3% this year and 2.3% in 2027. Growth forecasts were revised slightly downwards – to 0.8% this year and 1.2% next year. These are not forecasts that call for sharp rate increases. Nevertheless, ING Research economists expect a second increase in the third quarter – despite having revised their growth expectation for the Eurozone from 0.7% to just 0.3% this year.
"}},{"componentType":"sectionTitle","title":"What's happening in the economy?"},{"alignedImage":{"position":"bottom"},"componentType":"paragraph","richBody":{"value":"Geopolitical unrest leads to lower growth in the Eurozone
Due to the consequences of the conflict in the Middle East, confidence among companies in the Eurozone has weakened in recent months. The preliminary purchasing managers’ index (PMI) for June nevertheless shows a recovery from 48.5 to 49.5 points, although a level below 50 does indicate a contraction in activity. There was also contraction in business activity in April and May, making this a weak quarter for economic growth in the Eurozone. The PMI manufacturing index fell in June from 51.6 to 51.3 points, while the services index recovered from 47.7 to 48.9 points.
Inflation pressure in the Eurozone decreases
The PMI survey also showed that – partly because energy prices have fallen – inflationary pressure is decreasing. In both industry and the services sector, input costs rose less quickly and companies also raised their own prices less strongly than in May. Due to the lower energy prices, it is quite possible that this trend will continue in the coming months. Provided that the peace deal holds, of course. In May, inflation in the Eurozone still rose to 3.2% year-on-year. If the picture shown by the PMI continues, this could prevent the ECB from raising rates further.
US economy is resilient
The economic picture in the US is robust. The PMI declined there in March, but recovered strongly afterwards. The preliminary index for June rose from 51.5 to 52.5 points. The manufacturing index rose from 55.1 to 55.7 in June, the highest level since May 2022. This can partly be explained by companies building up additional inventories for fear of shortages and higher prices. The services index rose from 50.7 to 51.3 points, partly thanks to the World Cup taking place in the country.
In addition, US consumers, despite low confidence, continue to spend their money. Retail sales in the US rose in May by 0.9% compared with April, after an increase of 0.4% in April. Sales in the control group, in which items with volatile prices are not included, rose by 0.7% month-on-month. The fact that Americans continue to spend is partly due to the strong labour market. In May, the US labour market created 172,000 new jobs, while the number of new jobs in the two preceding months was revised upward by 93,000.
"}},{"componentType":"sectionTitle","title":"What's our view?"},{"alignedImage":{"position":"bottom","altTextEN":"equity valuations and earnings","extension":"png","original":"https://assets.ing.com/asset/d504f05e-a378-488b-9925-b9c5c9251c62/Aandelen-Contribution-to-performance-regions-equities-900x500.png","transformBaseUrl":"https://assets.ing.com/transform/d504f05e-a378-488b-9925-b9c5c9251c62/Aandelen-Contribution-to-performance-regions-equities-900x500"},"componentType":"paragraph","richBody":{"value":"Earnings expectations raised after very strong quarterly figures
Much stronger than expected quarterly figures, particularly from (US) tech companies, have been the main support for equity markets in recent months. In the first quarter, companies from the US S&P 500 index achieved an average earnings growth of almost 28%. That is more than double the +12% that had been expected beforehand. The 10% earnings growth of companies from the Stoxx Europe 600 index was also higher than expected. As a result, analysts have raised their earnings growth estimates for companies in the MSCI All Country World index for 2026 from around 15% to 26%. For 2027, the earnings growth estimate has been raised from 13% to 16%.
Equities have become cheaper
Because the average earnings growth of companies has increased more strongly than the global index (MSCI All Country World index), equities have become cheaper this year. The average valuation (price-to-earnings ratio) has fallen, both based on realised earnings over the past twelve months and based on expected earnings for the coming twelve months.
Equity returns are fully driven by earnings growth, except in Japan
Not only tech stocks drive the rise of the S&P 500 index
Tech stocks and especially chip stocks are responsible for a large part of the rise in both prices and earnings growth expectations. But that does not mean that other stocks have not performed well: in the US, the equally weighted S&P 500 index reached a new record level on 15 June. In this index, all 500 stocks have the same weight and there is – unlike in the ‘regular’ S&P 500 index – no large concentration of tech stocks. The ‘Magnificent 7’, seven large US Big Tech stocks, have even fallen on average by 2% this year, while the S&P 500 excluding Mag 7 has risen by 11% (in dollars).
Much good news is already in the prices
We still consider a neutral weighting of equities and bonds to be the best fit for the current circumstances. Earnings growth (expectations) may have risen more strongly than equity prices, but we think that most of the good news is already reflected in the prices. Due to the sharply increased expectations, there is also hardly any room for disappointments. We expect that higher interest rates and lower economic growth in the second half of the year will have an impact on corporate earnings. Moreover, support from central banks has disappeared: the ECB has already raised the policy rate and the likelihood of a rate increase by the Fed this year has increased.
We remain positive on emerging markets
Within equities, we maintain a neutral weighting for both US and European equities and remain overweight in equities from emerging markets and underweight in Japanese equities.
For emerging markets, the underlying earnings picture remains strong. Earnings growth of over 58% is expected for this year, making emerging markets by far the fastest-growing major equity region. Chip stocks also play a large role here: the strong performance of Taiwan’s TSMC and South Korea’s Samsung and SK Hynix accounts for an important part of the high earnings growth expectations. Unlike the US, the valuation of emerging market equities still lies below the long-term average.
Tech stocks remain attractive
We also maintain the overweight position in IT stocks. Earnings growth in the IT sector remains superior and the massive investments in AI infrastructure are a major support. However, we have become somewhat more cautious with regard to chip stocks after the enormous price increases of the past year. Due to strong demand for and limited supply of (memory) chips, the outlook remains strong, but the high expectations leave no room for disappointments. Software stocks that have lagged this year therefore have more potential in the case of positive surprises.
High yield bonds are resilient
Within bonds, we maintain our preference for ‘spreads’, in other words bonds with an (attractive) risk premium, which we mainly find in high-yield corporate bonds and emerging market bonds. Since the beginning of this year, the global high-yield segment has shown the strongest performance, which is largely attributable to a relatively low duration, in other words a shorter remaining maturity and therefore lower interest rate sensitivity. In addition, high yield offers a relatively high income, in other words ‘carry’. Emerging market bonds also offer an attractive carry.
Government bonds, on the other hand, have lagged, under pressure from rising interest rates as a result of worsening inflation prospects driven by higher energy prices. Government bonds now look more attractive due to the higher coupons, but given the current geopolitical uncertainty and inflation dynamics, we consider it still too early to become more positive about them.
"}},{"componentType":"linkList","iconTitle":{"title":"Read more"},"textLinks":[{"text":"Monthly Investment Outlook (pdf)","url":"https://assets.ing.com/asset/95b9ffeb-3712-44b9-93e3-72a102776b9f/ING_Monthly-Investment-Outlook-May-2026.pdf"},{"text":"2026 Midyear Investment Outlook","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-home"},{"text":"More market views","url":"/en/personal/investing/market-news-and-views"}]},{"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":"66802dd8-d77b-486f-8e5b-cb5280d01911","localeString":"en-GB","mainHeaderZone":{"backLink":{"textLink":{"text":"Market news and views","url":"/en/personal/investing/market-news-and-views"}},"componentType":"productHeader","coreHeader":{"body":"25 June 2026 – Strong growth in corporate earnings and a significantly lower oil price are supporting a positive sentiment on global equity markets. However, we believe that most of the good news is already priced in.","headerImage":{"extension":"png","original":"https://assets.ing.com/asset/b801f02c-5429-48d8-8694-8ba4bb48d2a3/Untitled-design-35.png","transformBaseUrl":"https://assets.ing.com/transform/b801f02c-5429-48d8-8694-8ba4bb48d2a3/Untitled-design-35","type":"image","width":1200},"subtitle":"Market Outlook: July 2026","title":"Strong earnings growth and lower oil prices largely priced in"}},"publishDate":"2026-06-25T10:10:28.514+02:00"}}