Looking Beyond the Headlines
The first half of 2026 has been anything but quiet. Geopolitical tensions in the Middle East have dominated global headlines, while closer to home the UK continues its familiar pattern of political churn—with the country now set to welcome its seventh Prime Minister since the Brexit vote.
It would be easy to assume that the markets should be unsettled by all this. Yet, somewhat counterintuitively, they are not. Equities have continued to make progress, and investor sentiment has held up better than many would have expected given the backdrop.
This contrast is important because it highlights a familiar but often overlooked reality: markets are not driven by headlines, but by how those headlines feed through into earnings, inflation, and interest rates.
Understanding that distinction is what separates noise from signal for long-term investors.
History suggests that while geopolitical events can unsettle markets in the short term, they rarely determine long-term investment outcomes. The real challenge is distinguishing between events that dominate the news cycle and those that genuinely change the economic backdrop.
That distinction matters more than ever today.
Markets Are Focusing on Fundamentals
Despite geopolitical tensions, ongoing trade disputes, and a generally uncertain macro backdrop, global equity markets have continued to perform well.
Year-to-date, the FTSE 100 has returned 7.47%, while the MSCI World Index is up 10.57%. Our own portfolios have also delivered positive returns, with the Flagship Growth Model 4 returning 7.23% and Model 5 returning 7.85% to 30 June 2026.
Rather than appearing complacent, markets are behaving as they typically do: focusing on corporate earnings, economic growth, and the outlook for interest rates.
While the headlines may shift, the key drivers of long-term returns remain largely unchanged.
The Key Risk: Energy and Inflation
The most direct transmission channel from current geopolitical tensions to markets is through energy prices.
Oil markets remain highly sensitive to developments in the Middle East, and a sustained rise in energy costs would inevitably feed through into inflation. UK CPI inflation has recently fallen to 2.8%, although forecasts suggest it could drift back towards 3.5% over the remainder of the year, with fuel prices likely to be a key driver.
However, we view this as a potential inflation setback rather than the start of a new inflation cycle.
Unless energy prices move significantly higher and remain elevated, the broader disinflation trend remains intact.
Central Banks Remain Patient
Central banks appear to share our assessment.
The Bank of England has held rates at 3.75%, signalling patience rather than urgency, although two members of the MPC voted for a rate increase. The Federal Reserve has also paused, while the European Central Bank continues to balance softer growth against lingering inflation risks.
Taken together, policymakers remain cautious—but not yet concerned enough to materially change the direction of policy.
For investors, that remains a broadly supportive backdrop.
What Should Investors Do?
Periods like these tend to create more behavioural risk than financial risk.
The temptation to react to unsettling headlines is completely understandable, but history consistently shows that short-term investment decisions driven by geopolitical events are rarely rewarded.
Instead, we believe investors should stay anchored to three core principles:
Stay invested. Some of the strongest market returns occur during periods of heightened uncertainty.
Remain diversified. Market leadership rotates across regions, sectors, and asset classes—diversification remains essential.
Expect volatility. Short-term market swings are a normal feature of investing. They can feel uncomfortable, but they are not unusual.
Our Current Positioning
We do not believe the current environment warrants a defensive shift in long-term portfolios.
While risks have edged higher, the broader backdrop remains constructive. Economic growth has proven more resilient than expected, inflation continues to trend lower over the medium term, and central banks remain measured in their approach.
In fact, periods of volatility often create opportunities for active managers to add value through disciplined portfolio positioning.
For that reason, we remain focused on long-term fundamentals rather than short-term geopolitical forecasting.
Final Thoughts
The greatest threat to investment success is often not the event itself, but the decisions made in response to it.
