IPOs, US-Iran deal, and Fed shape the half-year outlook

Do blockbuster-IPOs indicate the end of a bull market in equities? The S&P 500 has set new records in 2026, and the pace of initial public offerings has picked up. While that has sometimes coincided with a peak in markets, we see equities supported by solid earnings and a resilient economy, and we do not expect US interest rates to rise. A US-Iran accord and a sustained decline in oil prices could provide a resumption in market optimism. We keep an equity market overweight and moderate pro-risk stance in portfolios.

Since the beginning of the year, financial markets have moved from one worry to the next, yet none of them has ultimately stopped the equity market rally. After five months of geopolitical concerns, fears over a potential inflation shock, and worries of a possible AI bubble, the latest anxiety is the recent wave of initial public offerings (IPOs). SpaceX’s IPO valued it at US 1.8 trillion last week, and AI giants Anthropic and OpenAI plan their own listings. With the S&P 500 up 8% and Nasdaq 11.5% since the start of the year, do these IPOs indicate a tipping point?

2026 IPOs in historical context

A surge in IPO activity is often viewed as a sign of exuberance in financial markets and has at times coincided with peaks in equity valuations. This was notably the case before the dot-com bubble burst in the early 2000s and, to a lesser extent, in 2021 before the difficult stock market year of 2022.

The numerous IPOs since the beginning of the year come after four years of drought

However, the numerous IPOs since the beginning of the year come after four years of drought. In the US, more than 40 new listings worth over USD 28 billion through the first five months of 2026 mark the highest figures since 2021. Yet that is in line with the US historical average of around 100 IPOs per year. It is also far fewer than the 287 US-domiciled IPOs recorded in 2021, or the 388 recorded in 1999, both years that preceded significant market declines.

It is not surprising that IPOs take place in a context of heightened market optimism. But such optimism does not, by definition, last. Indeed, beyond short-term gains in the immediate aftermath of a listing, around half of newly listed shares trade below their initial offering price within the following 12 months. Data from economist Jay Ritter shows that, since 1980, the average newly-listed US firm has trailed the market by 21% over its first three years.

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US-Iran accord frees up Hormuz shipping

June 15, 2026

Inclusion in benchmark stock indices is a double-edged sword for investors. On the one hand it guarantees demand from passive investors who simply replicate the composition of a benchmark index, and such demand is positive for the performance of newly issued shares. On the other hand, if results disappoint and valuations decline, rapid inclusion in benchmark indices spreads the underperformance of these new constituents to the rest of the index.

This year’s IPOs are unusual for their scale. Even if outstanding, publicly-available shares, or ‘free floats’, are likely to be below the usual 10% of each firm’s value, concerns about the expected impact on indices of including multi-trillion-dollar valuations are understandable. This is especially pertinent if their performance disappoints.

Small index weights for new entrants may not stay small for long

Moreover, small index weights for new entrants may not stay small for long. The free float of SpaceX – at around 4% of its market capitalisation – is meaningfully below typical levels, offsetting the fact that the value of shares floated is the largest offering on record. Benchmark-aware institutional investors are likely to build positions in line with index weights following the expiration of ‘lock-up’ agreements for existing private shareholders, at which point index inclusion should increase from around 0.10% to approximately 1.0-1.5% in certain indices.

A second source of concern is that corporate buyback activity is at its lowest level since 2021, with repurchased shares equivalent to just 1.3% of the S&P 500’s current market capitalisation, and 0.8% of the Nasdaq, compared with 5-year averages of 1.7 and 1.6% respectively. The combination of large amounts of newly issued shares with few shares withdrawn from the market raises the possibility of a temporary equity oversupply if investor demand fails to keep pace. However, we estimate that corporate buybacks should broadly balance with total new equity issuance in 2026, even after the post-IPO ‘lock ups’ on shares expire.

In order for the broader equity market to suffer, a tightening of financial conditions… would likely be needed…

The Fed holds the key for equities

This leads us to liquidity conditions. In order for the broader equity market to suffer, a tightening of financial conditions — particularly driven by rising interest rates — would likely be needed as a catalyst. Currently, measures of financial conditions, as measured by key asset prices and credit indicators, remain loose (see chart 1). As long as rising inflation expectations do not lead the Federal Reserve (Fed) to tighten monetary policy, the conditions remain in place for solid corporate earnings growth to keep supporting equity markets. Kevin Warsh’s debut as Fed chair will also attract scrutiny. Known to be critical of forward guidance, Mr Warsh may entertain more ambiguity in the future. We therefore regard at least a partial re-opening of the Strait of Hormuz, as indicated by the recent US-Iran agreement, as essential for continued equity market gains, as it would prevent the Fed from raising policy rates.

A 50% recovery in flows through the Strait by mid-summer remains our base scenario. News of a breakthrough in US-Iran negotiations, with a signed agreement scheduled later this week, raises the odds for such an outcome. Brent crude oil prices have already fallen below the USD 90 per barrel. We would expect further oil price declines during the summer and beyond, thereby easing inflation and interest-rate expectations.

Staying the course pays off

Investment history tells us that staying the course despite uncertainty tends to pay off. In the absence of a US recession or corporate defaults triggered by a central bank rate-hiking cycle, or major real estate corrections or financial system instability, the best strategy for investors is usually to maintain portfolio allocations that are aligned with their risk tolerance and long-term objectives.

Since the 1990s, navigating volatility has proven far more rewarding than trying to avoid it altogether. Investors who sat in short-term money market instruments since the start of the year waiting for an equity market correction would have underperformed those who simply invested in the S&P 500. Moreover, current equity market resilience remains anchored in a solid economic backdrop and robust corporate earnings growth. Outside recessions, company profits generally tend to grow.

Emerging market stocks’ valuations are significantly more attractive, and we keep a portfolio overweight

We steer our tactical allocation to equities towards markets where the balance of risks and rewards looks most attractive. Beyond the US market and the technology sector, 2026 has seen emerging market equities stage a strong comeback, supported by excellent earnings trends. Emerging-market equities remain highly compelling. With earnings growth expected to outpace their developed-market peers, emerging market stocks’ valuations are significantly more attractive, and we keep a portfolio overweight. 

Within our equity exposures we have however adjusted our sector strategy to reflect a more neutral view on global technology stocks after the strong performance year-to-date, and as earnings upgrades fade in some areas. We have now added financials to our list of preferred sectors, alongside healthcare and utilities. Financials are attractively valued, and earnings expectations appear conservative. Overall, we keep a moderate pro-risk stance in our portfolios, and an overweight exposure to equities.