The global economy remains going strong despite the Gulf crisis

The global economy has not ground to a halt, and the financial markets continue to ride a strong wave of expansion, allaying the worst fears linked to the recent crisis in the Middle East. Although the sudden energy shock has hit household finances around the world, extraordinary corporate profits – particularly in the technology sector – have acted as a powerful buffer, keeping the growth trajectory firmly on track. The recipe for navigating the coming months seems clear: avoid seeking refuge in excessive liquidity, maintain a risk-friendly stance and build broadly diversified portfolios capable of withstanding future waves of inflation and political uncertainties. These are the key conclusions emerging from the Outlook for the second half of 2026, entitled ‘There is still enough fuel in the engine of the economy’ and authored by Maria Paola Toschi, Global Market Strategist at J.P. Morgan Asset Management. The study highlights how the setback caused by the closure of the Strait of Hormuz has not undermined the economy’s fundamental drivers, which are underpinned by US consumption that remains robust and an unprecedented boom in technology investment.

The sudden rise in oil and gas prices – the report explains – has inevitably eroded disposable incomes, but consumer reactions have varied significantly from region to region. In the United States, spending has held up surprisingly well, aided in part by past fiscal stimulus measures, whilst in Europe households have shown greater vulnerability, returning to high savings rates similar to those seen during the pandemic. The macroeconomic picture is, however, returning to normal: crude oil has fallen to around $77 a barrel and, although a return to pre-crisis levels (close to $60) will require a gradual resolution of international geopolitical tensions, the worst of the price shock appears to be behind us. This gradual stabilisation should bring US inflation back towards 3 per cent by the end of the year. Faced with this scenario, central banks have abandoned their traditional accommodative approach: the Federal Reserve is expected to keep rates unchanged throughout 2026, postponing any potential cuts until 2027 within a stable labour market that is, however, in a ‘wait-and-see’ phase (‘no fire, no hire”), whilst the European Central Bank has already adopted a more restrictive stance with rate rises to anchor inflation expectations.

The real driving force that is offsetting the decline in consumer spending is the huge level of capital expenditure in the technology sector. With investment in artificial intelligence estimated at $650 billion this year and $900 billion next year, the impact of this wave of innovation is being compared to historic revolutions such as those brought about by the personal computer, mobile telephony and the internet. The investment paradigm has, however, shifted: the focus has moved away from a heavy concentration on the so-called ‘Magnificent Seven’ to embrace a much more global approach that rewards the entire AI value chain. This broadening primarily involves semiconductor and hardware manufacturers, which have also driven exceptional gains in emerging Asian markets such as South Korea and Taiwan. Fears of an imminent speculative bubble are allayed by the fundamentals: indicators that relate prices to growth (such as the PEG ratio) show that in key sectors such as software and semiconductors, valuations have actually fallen, justified by extremely robust corporate earnings growth.

In this technology-dominated landscape, Europe is carving out a key strategic role in portfolio decoupling, precisely because its market dynamics are far less tied to the hi-tech sector. Although the Old Continent has shown short-term weakness due to its energy dependence, the easing of these headwinds is paving the way for a new era of strategic investment. When asked specifically which European sectors will benefit most from the investment plans, the analysis points decisively to defence, security and infrastructure. These are areas set to see a sharp increase in public spending, a direct response to the vulnerabilities highlighted by the geopolitical crises of recent years. Alongside these is the banking and financial sector, identified as another major beneficiary in Europe, as it stands to gain significantly from the steepening of the yield curve and wider interest margins.

Despite this widespread optimism, J.P. Morgan AM’s investment strategy urges investors not to underestimate the medium- to long-term risks. These include potential overcapacity in the technology sector, should massive investment fail to meet adequate demand, and the possible return of structural inflation triggered by reduced globalisation and the fragmentation of supply chains. A further source of volatility is expected from the upcoming US mid-term elections; the prospect of a divided Congress, according to the study’s author, could paralyse future fiscal initiatives – a critical issue for a country already running a public deficit of over 6 per cent – and could put pressure on the bond market. To address these uncertainties, the study’s final recommendation is to maintain a diversified investment portfolio through rigorous geographical and sectoral diversification, complementing traditional assets with alternative investments and private credit markets – considered to be free of current systemic risks – in order to build robust defences against any future shocks.