Macro Musings with the W1M Multi-Asset Team: Volume 4

**Luke Hyde-Smith** (0:03)
Welcome back to the Why Invest? Podcast and the fourth in this quarterly mini-series, W1M Macro Musings. Delighted to be joined once again by my fellow co-hosts and colleagues, James Me and Matt Parkinson. How are we doing, guys?

**James Mee** (0:15)
We're good.

**Luke Hyde-Smith** (0:15)
We're good.
Great stuff, lots to discuss as ever. Just before we get going, as a brief reminder for those that perhaps did not catch either of our first three episodes, the aim of this quarterly mini-series is to bring our investing journey to life, to share what we have learned to date, both positive and perhaps more importantly, negatives. We want to bring you, the listener, into the room, so to speak, and frame some of the ideas and topics which shape our conversation on the desk and how we think about the strategies we manage. As ever, it would be great to get any feedback and indeed any areas that you would like us to cover. So our contact details are provided in the show details online. So without further ado, let's kick off the show and this episode. We're going to start with a quick recap of the second quarter of 2026 and indeed how things have unfolded over the first half of the year. So who's going to take that?

**Matt Parkinson** (1:11)
So I think it's pretty fair to say we've had a hell of a first half. It feels like really we've had a full economic cycle in about six months.
On top of that, I'd say about 10 years worth of geopolitical events, to kind of say the least. We have categorized it, the first half, as three distinct periods. We've gone Goldilocks to start us off, to the gridlock kind of middle, to the go-go markets we have today. To summarize those, beginning of the year, we came into the year with what we kind of framed as a Goldilocks economic backdrop. We had strong economic growth. The US. GDP now actually got above 5%.
We had inflation trending down in the UK and the US., expected to be around 2% by the summer. We had the dollar weakening, so pretty rosy backdrop for markets, but in our opinion, largely priced after the strong run markets had in H2 2025
Then Trump, he kind of likes to surprise us all, and we think it's fair to say bit off more than he could chew, emboldened by the successful capture of the Venezuelan president. He decided to take on Iran, and I think it's safe to say that backfired somewhat, only judged purely by his approval rating, which fell pretty sharpish off the back of that. So what happened there? The US striped Iran. They responded by closing the straits of the Hamoos, which kind of frames the gridlock analogy, why 20% of the world's oil and gas flows through there. Oil price spiked up 76%, the largest spike we've seen since the conflicts in the Middle East in the 1970s. But then we saw a memorandum of understanding, ceasefires being announced, the largest drop in the oil price since the COVID pandemic, which was great because it enabled the markets to actually focus on earning season. And Q1 earnings, which are reported in April, May time, were just phenomenal. We saw the largest growth in the S&P earnings expectations outside of recession recovery in the last decade. We saw expectations go from 12% to 24% for the S&P 500, so that's phenomenal growth. That was rewarded with the S&P seeing its best quarterly performance since Q2 2020 And a lot of this was driven by quite a narrow subsector of the market, which was the semiconductor names, which I'm sure we can touch on later with regards to what's driving that and the capex investments surrounding AI.

**Luke Hyde-Smith** (3:54)
So broadly speaking, we've had a whole mini cycle in the first half of this year. I mean, nothing if not interesting.
So trying to frame where we are now, I mean, what do we think is topical and relevant for markets at the moment? To come back to what was driven markets so far, we've still got an ongoing sort of conflict stroke unresolved straits of almost US. Iran situation. We've got the impact of AI and are we in a bubble? Do we think that is supportive for earnings? You've mentioned earnings have been extremely strong. We've got an ongoing unresolved Russia-Ukraine situation. I suppose thinking about the UK, a very, very volatile, if not uncertain, more likely political backdrop. So a huge amount to consider.

**James Mee** (4:37)
Well, debate, maybe that's shifting. Maybe we're getting some more certainty now.

**Luke Hyde-Smith** (4:40)
Maybe.

**James Mee** (4:41)
I mean, what's topical other than the World Cup? I'd say that's probably been quite successful.