The most significant development in recent weeks has been the de-escalation of tensions between the US and Iran. Under the memorandum of understanding signed on 17 June, Iran agreed to reopen the Strait of Hormuz toll-free for 60 days, while the US lifted its naval blockade and both sides established a 60-day window for nuclear negotiations. By 25 June, the geopolitical risk premium on oil had fully unwound, with prices close to pre-Middle East conflict levels. This removed a major tail risk, but it has not yet calmed equity markets.

With geopolitical risks easing, market focus has shifted to monetary policy. Following the 16-17 June Fed meeting, uncertainty over the central bank’s rate path has weighed on market sentiment, with nine of 18 policymakers expecting rate hikes in 2026. However, our view diverges from these projections. With the US-Iran interim deal in place, we expect core personal consumption expenditures inflation – the Fed’s preferred inflation gauge – to ease towards 2% over the coming quarters as tariff and energy effects fade. As a result, the Fed is likely to stay on hold through year-end 2026.

Furthermore, we expect any softening in the market’s rate-hike expectations to prove supportive for the equity market. Against this backdrop, we stay Overweight on US equities and continue to seek opportunities to diversify exposure within technology – shifting from semiconductors towards the internet and software sub-sectors – and beyond technology through US communication services and healthcare.

Where we see the strongest opportunities

To help investors capture growth while navigating the volatility ahead, we share three Opportunistic ideas that we initiated with the publication of our H2 2026 outlook, Navigating shifting sands – 19 June 2026:

1. US communication services

Our first idea targets US communication services, where we believe the recent correction has created an attractive entry point. The sector is dominated by large internet platforms that stand to benefit from a recovery in digital-ad spending. In addition, growing AI adoption and monetisation should support earnings and improve sentiment. These catalysts justify the sector’s rising capital expenditure and create room for a valuation re-rating, especially since valuations remain reasonable compared with the five-year average.

2. Global high-dividend income

Our second idea looks to global high-dividend stocks as a source of resilience in volatile markets. With equity risk premiums remaining compressed, dividend income provides a valuable return cushion. This strategy’s mix of cyclical and defensive sectors, such as financials and utilities, enhances portfolio resilience during periods of market volatility.

3. Japanese banks

Our third idea turns to Japanese banks. Further rate hikes by the Bank of Japan should support net interest margin expansion, while Japan’s reflation cycle should bolster loan demand. Ongoing corporate governance reforms are also driving share buybacks and higher dividends, pointing to stronger returns on equity for the banks. These factors should support a sustained valuation re-rating for Japanese banks.

The core investment takeaways

The macro backdrop has improved where it matters most – the Gulf tail risk has receded, even if that uncertainty has now shifted over to the Fed. We would use this window of volatility to broaden equity exposure into communication services, diversify beyond the tech sector into Japanese banks and reinforce resilience through global high dividends. In a market increasingly defined by complex crosscurrents, investors may balance risks by harnessing these opportunities to capture growth and portfolio resilience.