Where are the most compelling opportunities amid escalating geopolitical tensions, AI-driven disruption, and a breakdown in traditional portfolio hedges?
Beyond the Conflict
Investors are navigating escalating geopolitical tensions, accelerating AI-driven disruption, and a meaningful breakdown in traditional portfolio hedges. Where can you find compelling opportunities across both public and private markets?
In our 2Q 2026 Asset Allocation Outlook webinar, Beyond the Conflict, Jeff Blazek, Co-Chief Investment Officer, Multi-Asset, was joined by Hakan Kaya, PhD, Senior Portfolio Manager on the Quantitative and Multi-Asset Strategies team, and Robert Dishner, Senior Portfolio Manager and Head of Trading London, for a focused discussion on:
- Portfolio positioning and where we see the most compelling opportunities
- How geopolitical risk and AI disruption are reshaping our macro and fixed income outlook
- What the breakdown of traditional hedges means for portfolio construction going forward
10 Key Takeaways from the Webinar
- Risk assets still favored. Despite a ~10% equity correction following the start of the Iran war on February 27, the S&P 500 has staged one of the fastest oversold-to-overbought recoveries in roughly half a century—reinforcing the Committee’s overweight to global equities.
- U.S. large cap upgraded. Valuation compression driven by strong earnings growth has made U.S. large-cap equities more attractive on a relative basis than they’ve been in months, prompting the Committee to move to a slight overweight for the first time in a while.
- Growth impact manageable, so far. U.S. GDP consensus for 2026 has moderated from around 2.6% pre-war to 2.3%, but the team views that as a still-healthy backdrop for corporate earnings, which continue to accelerate in the U.S. and emerging markets.
- Core inflation should hold, but headline risk is real. The team expects core CPI to remain in the 2.5–3% range despite an oil-driven spike in headline inflation, potentially to 4% or higher. Limited pass-through from energy to core gives central banks some breathing room.
- We think the Fed may still have room to cut. With the labor market showing signs of softening and core inflation contained, the team sees a path for the Fed to ease modestly this year—contrary to market pricing that leans toward rates on hold. The ECB, despite hawkish market expectations, is expected to stay on hold given Europe’s weakening growth outlook.
- Take the other side of the rates move. The Committee is adding duration in high-quality U.S. fixed income, viewing part of the recent rates sell-off as liquidity-driven rather than purely fundamental—creating an opportunity for patient investors.
- Oil supply disruption is unprecedented in scale—and won’t resolve quickly. Roughly 16 million barrels per day of production have been disrupted across the Gulf region. Global inventories have drawn down around 500 million barrels year-to-date, and historical precedents suggest normalization takes quarters, not weeks.
- Commodity spillovers are broadening. About 80% of a broad commodity basket is directly or indirectly impacted by the energy shock—spanning metals (aluminum smelter shutdowns, sulfur shortages) to agriculture (fertilizer supply constraints that could hit crop yields later this year).
- The “6Ds” make a structural case for commodities. Divestment, decarbonization, data centers/AI, de-globalization, de-dollarization, and defense spending all converge on higher long-term demand for commodities—well beyond the current conflict premium.
- Private credit remains sound despite BDC noise. Redemption pressure in listed and unlisted BDCs reflects asset-liability mismatch and sentiment—not underlying credit deterioration. The team sees no systemic concerns in institutional-caliber private debt portfolios.
To read the full outlook, please click here.