Investment Viewpoint: Markets rebound despite uncertainty

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Markets and macro insights with Bernard Swords, Chief Investment Officer

What happened in markets last week?

• Global equity markets delivered a strong performance last week, with the World Index rising close to 1.8% in euro terms and delivering over 3% year-to-date. Notably, some of the recently weaker sectors led the rebound, including Information Technology, Communication Services and Financials. Much of this probably reflected a period of stabilisation after recent softness. The background or equity markets remains positive. Interest rates will be flat to down across the developed world, fiscal policy is turning supportive, and corporates are delivering strong profit growth in this environment.

What has been happening in fixed income markets?

• European fixed income markets have started the year on a strong footing, gaining close to 1.5% year to date. Markets appear to have fully recovered from the late 2025 sell off, supported by a compelling combination of economic resilience, a benign inflation backdrop, and a central bank stance that is expected to remain on hold until 2027. This mix has created a constructive environment for fixed income assets. Peripheral sovereigns and long duration government bonds have led performance, while investment grade corporate bonds have also delivered steady, constructive returns.
• European fixed income remains supported by declining inflation, a paused central bank and a robust economic backdrop. Long duration assets may experience volatility throughout the year, as market focus on fiscal balances remains a key thematic both within Europe and on a broader global scale. However, short and intermediate duration assets, be they sovereign or high-quality credit, are positively positioned and offer opportunity.

What happens now that the US Supreme Court has stuck down Trump’s tariffs?

• Trade policy is likely to re‑emerge as a market theme. The US Supreme Court struck down existing tariffs, and while the administration is expected to introduce alternative measures, our assessment is that the most negative outcome is ‘as you were’, however, investors should expect significant rhetoric and uncertainty, leading to periods of elevated market volatility. As ever, we believe it is more important to focus on actual policy actions rather than political statements.
• Geopolitical risk also remains in the background. Rising tensions between the US and Iran, including the potential for targeted strikes, have already fed into energy markets, with oil prices responding accordingly. While fundamentals remain supportive for equities, geopolitical developments could introduce bouts of short‑term risk.

What were last week’s data highlights?

• Economic data last week was mixed. In the US, Q4 GDP figures were released later than usual due to the earlier government shutdown and were somewhat distorted by those disruptions. Domestic demand slowed from an annualised 3% to 2.5% in the quarter, broadly aligning with earlier indications of softer economic momentum. More recent data, however, has been encouraging. January industrial production rose 0.7% month‑on‑month and is now growing at an annualised pace of 1%, marking a notable turnaround after several years of contraction.
• In the euro area, the latest PMI readings were strong. The composite index rose from 51.5 to 51.9, helped significantly by a rebound in manufacturing, which returned to expansion territory at 50.8. These indicators are consistent with improving growth expectations for 2026, with some forecasts moving towards 1.5% for the year. Encouragingly, fiscal spending in Germany is beginning to feed through, reflected in stronger January survey data there.

How are the performance figures of earnings season?

• Earnings season is now around 80% complete in the US. Results have been solid, with earnings coming in around 7% ahead of expectations and recording 12% year‑on‑year growth. While slightly lower than earlier in the season, this still represents a strong quarter, helped in part by a weaker dollar. In the euro area, earnings are up 4% year‑on‑year and three percentage points ahead of expectations, though a stronger euro has been a headwind to profit growth.
• Cyclical sectors have led the way on both sides of the Atlantic, materials and industrials in the US, and consumer discretionary and materials in Europe, while defensive sectors have lagged but still generally exceeded expectations. Importantly, among companies issuing guidance, roughly half have raised their outlook, compared with just 10% downgrading.

The week ahead: what to watch out for

Looking to the week ahead, the economic calendar is relatively light, with US Producer Price Index (PPI) data the main release of note. However, we expect the market focus to remain firmly on the policy implications of the Supreme Court’s tariff decision and the administration’s response. This is likely to be the dominant driver of sentiment in the near term.