The defining story of Q2 2026 is the collision between trade policy shock and a stubbornly hawkish Federal Reserve. President Trump's sweeping tariff package — announced in early April — has rattled supply chains and corporate earnings outlooks simultaneously, while the Fed has made clear it will not ride to the rescue with rate cuts until it sees clear evidence of cooling inflation.

This creates a difficult environment for equities: earnings pressure from the top line (tariff costs) and valuation compression from higher-for-longer rates at the same time. The market is not yet pricing in a full recession, but J.P. Morgan's 35% recession probability estimate reflects a genuine deterioration in the outlook.

The S&P 500 has fallen roughly 9% from its February highs. Nasdaq has fared worse, with big tech names bearing the brunt of the sell-off given their stretched valuations and exposure to global supply chains. Q1 earnings season (kicking off mid-April) will be crucial — any guidance cuts from major corporates could push the index lower.

Year-end S&P 500 targets from major banks have been revised down sharply — UBS sits at 5,800, Goldman at 5,700, while more bearish shops like Barclays have cut to 5,200. The range reflects genuine uncertainty rather than analytical disagreement.

The FTSE 100 has proved more resilient than its US counterpart, partly due to its composition — heavy on commodities, financials and defensive staples rather than growth tech. However, sterling strength is a recurring headwind, as around 75% of FTSE 100 revenues are earned overseas.

The Bank of England is expected to cut rates twice in 2026, which could weaken the pound modestly and provide a boost to the index's international earners. UK domestic-facing stocks (FTSE 250) remain attractive for patient investors.

Gold is the standout performer of 2026, hitting a new all-time high of $3,238/oz this week. Demand is being driven by central bank buying, safe haven flows from geopolitical uncertainty, and reduced confidence in the US dollar.

Oil has weakened on demand concerns — Brent sits at $64.80, well below the $80+ levels seen in late 2025.

Bitcoin has shown surprising resilience at $84,200, helped by institutional inflows via ETFs and the growing narrative of BTC as "digital gold" in an inflationary environment. Ethereum has lagged, caught between macro headwinds and network upgrade uncertainty.

· Tariff escalation beyond current levels
· Q1 earnings guidance cuts in tech and consumer
· Fed pivot delayed further by sticky CPI
· China retaliation measures
· UK commercial property stress
· Credit spreads widening in high yield