7th July 2026

Pictet: Barometer: Equity rally to roll on as stagflation risks recede

With inflationary pressures likely to abate as the US and Iran make progress towards a peace agreement that would stabilise oil markets, equities should build on their recent gains.

Asset allocation: Staying positive on equities

Equity markets have recovered strongly from the sell-off triggered by the US’s decision in late February to go to war against Iran. Healthy economic growth, strong corporate earnings and hopes for an AI-inspired increase in productivity have helped propel stocks higher in recent weeks.

Even so, the magnitude of the rally – not least the searing 80% quarterly gain in the Philadelphia Stock Exchange Semiconductor Index – is encouraging a growing number of investors to take profits.

In our view, though, equities are not about to reverse course. There are strong arguments for a continuation of the rally. To begin with, the risk of stagflation that has haunted markets since the war began is receding. With the US and Iran now making firm progress towards a peace agreement and oil prices falling in response, we envisage that consensus expectations for economic growth will pick up and those for inflation to head lower. That would be a positive development for stocks (and bonds), reversing a trend that emerged in March (see Fig. 2).

History also suggests equities have further to run. Interest rates have begun to rise worldwide, but experience shows this is usually positive for stocks, particularly if monetary tightening is a reaction to improving growth.

In each of the five US monetary tightening cycles since 1987, US stocks have delivered returns of 4–16% in the twelve months following the first rate hike.

Read more

Investments