Beyond the Headlines: The Forces Shaping Markets in 2026

The first half of 2026 was shaped by a handful of powerful themes that influenced markets and investor sentiment. While headlines focused on everything from AI to geopolitics, these six stories provide the broader context behind market performance and can help guide conversations with clients.
1. AI Went Mainstream - AI became more than a technology story, driving investment across data centres, energy, infrastructure, and industrials. Its influence expanded well beyond the tech sector.
2. Geopolitics Mattered Again - Conflict in the Middle East and concerns about oil supply disruptions pushed energy prices and inflation risks back into focus, reminding investors that geopolitical events can quickly affect markets.
3. Bonds Returned to the Spotlight - Higher bond yields reflected ongoing concerns about inflation, government borrowing, and economic growth. Fixed income became an increasingly important part of portfolio discussions.
4. Trade Tensions Re-Emerged - Tariffs and supply-chain concerns returned as market themes, highlighting the impact trade policy can have on inflation, growth, and corporate profits.
5. Rate-Cut Expectations Changed - Many investors expected lower interest rates in 2026, but persistent inflation and resilient economic growth led markets to reassess how quickly central banks could ease policy.
6. Markets Stayed Resilient - Despite higher rates, geopolitical uncertainty, and trade concerns, equity markets continued to perform well, supported by strong earnings and optimism around AI.

Using the SIA sector report with equal-weighted industry proxies, sector performance in 2026 shows an exceptionally wide dispersion, with leadership heavily concentrated in the AI and industrial buildout complex.
Electronics and semiconductors (EWI559), up 81.88%, and computer hardware (EWI543), up 57.32%, were the dominant leaders, reflecting continued AI-driven demand for chips, servers, and data-centre infrastructure. Telecommunications (EWI572), up 34.11%, also benefited from rising global data traffic. Energy (EWI345), up 30.45%, and metals and mining (EWI352), up 22.36%, were supported by both geopolitical risk premiums and the resource intensity of the AI and electrification cycle.
A second tier of strength emerged across cyclical industrials, with transportation (EWI524), chemicals (EWI340), aerospace and defense (EWI454), and manufacturing (EWI466) all posting solid double-digit gains, reflecting resilient global activity and continued supply-chain realignment.
At the lower end, defensives and consumer-facing sectors generally lagged. Insurance (EWI419), down -7.05%, health services (EWI444), down -7.08%, and specialty retail (EWI517), down -7.78%, were among the weakest performers, alongside food and beverages (EWI386), down -1.98%, which faced margin pressure in a higher-cost environment. Software (EWI550), internet (EWI568), and media (EWI495) posted only modest gains, significantly lagging the hardware and infrastructure segments of technology.
Overall, sector performance underscores a clear leadership regime dominated by AI-related capital spending, industrial inputs, and energy-linked industries, while defensives and consumer-oriented sectors lagged in a more selective and cost-sensitive environment.

Using the SIA heat map of global equity markets with ETF proxies as a guide, country performance in 2026 highlights how concentrated market leadership has been.
South Korea (FLKR), up 118.28%, and Taiwan (FLTW), up 71.93%, were the clear standouts, driven by AI-related semiconductor demand, with firms such as SK Hynix underscoring the strength of the chip cycle. Elsewhere, Thailand (THD), up 23.53%, and Peru (EPU), up 18.70%, benefited from tourism recovery and metals exposure. The Netherlands (EWN), up 18.29%, reflected its key role in semiconductor equipment and AI supply chains. Brazil (FLBR), up 17.53%, and Mexico (FLMX), up 12.38%, were supported by commodities strength and continued nearshoring themes, while Japan (FLJP), up 15.15%, gained from governance reform and improving shareholder returns. The United States (FLQL), up 11.85%, delivered steady gains but lagged the most AI-intensive markets.
At the lower end of positive performance, Europe broadly lagged but remained in the black, with Germany (FLGR), up 1.75%, France (EWQ), up 1.84%, and Switzerland (FLSW), up 3.78%, reflecting softer growth and weaker earnings momentum. Canada (FLCA), up 8.65%, and Argentina (ARGT), up 8.11%, were mid-pack performers, while Saudi Arabia (FLSA), up 4.75%, and Africa (AFK), up 3.54%, trailed stronger emerging market trends. South Africa (EZA), down -1.72%, was one of the few negative markets.
The clearest underperformance came from China Mainland (FLCH), down -7.10%, India (FLIN), down -10.57%, and Indonesia (EIDO), down -31.28%, where growth concerns, policy uncertainty, and regulatory pressures weighed on sentiment.
Overall, the dispersion highlights a market driven less by broad regional trends and more by concentrated leadership in AI-linked economies, commodity exposure, and country-specific policy and structural factors.