Investment Outlook 2026 Q2

Investment Outlook 2026 Q2

Since the outbreak of the latest phase of the Middle Eastern war, everyone has been speculating about how long the conflict might last and how high energy prices may rise. Another question is what global economic consequences this could have and how it may affect investments. Experts at OTP Bank do not anticipate further significant escalation or a prolonged war; however, due to the uncertainty and risks, they recommend considering defensive investments at this time. According to the analysts, the relative winner of the war could be the U.S. market, while Europe may suffer more from the current situation.

Budapest, March 31, 2026 – The United States is economically much more insulated from the current Middle Eastern war, as its energy dependence is significantly lower and it is even a major exporter, according to OTP Bank’s latest quarterly Investment Outlook. Over the longer term, however, the U.S. economy cannot completely shield itself from rising oil prices, supply chain disruptions, and increasing costs, the report adds.

Europe has reason to be concerned about energy prices

Although the war has increased risks, the bank’s analysts still expect the U.S. economy to grow at around a 2 percent pace. Rising oil prices could weaken U.S. consumption prospects and increase inflation. At the same time, higher oil prices could boost the profits of American oil companies, which may translate into further investments and increased production.

“In the case of the United States, the long-term risk lies in the rising budget deficit and national debt,” said Gergely Tardos, Chief Economist of OTP Bank. He also referred to estimates suggesting that by 2026, U.S. government interest expenses could double, reaching $2 trillion annually. Furthermore, the president may be encouraged to pursue additional fiscal stimulus due to low approval ratings ahead of this year’s midterm elections, in addition to potentially requesting $200 billion from Congress to finance the war in Iran.

Europe’s energy dependence is significantly higher; however, according to analysts, the current war involving Iran does not pose as great a risk to the continent as the outbreak of the Russia–Ukraine conflict did in 2022. Based on the current baseline scenario, the war could have a moderate negative impact of 0.2–0.3 percentage points on eurozone growth, although persistently high energy prices may carry the risk of stagflation. Even in this case, however, a recession in the currency area may still be avoided, analysts add, suggesting that in such a scenario the European Central Bank (ECB) would likely be unable to avoid raising interest rates.

Exercise caution with equities!

In the current situation, heightened caution is also warranted in the field of investment, as significant economic uncertainty is weighing on the markets as well.

Regarding the U.S. stock market, analysts highlight that the correction seen so far does not offset the economic risks arising from the war, as equities remain expensive and the corporate profit cycle is in late stages. Overall, they continue to recommend neutral exposure; however, within sectors, they favor defensive industries. For this reason, the bank’s latest recommendations now include the U.S. healthcare sector, and they consider defensive utility companies to be a better investment than before.

In connection with the latter, they note that global demand for electricity and the spread of renewable energy is also improving their outlook. At the same time, mining—considered a cyclical industry—has been removed from the recommendations, as its prospects have been worsened by economic risks. Among long-term, trend-based investment recommendations, semiconductor manufacturing and cybersecurity remain unchanged. Although the war may pose challenges for these sectors, they are expected to perform well in the future regardless of the current situation.

European equities are specifically to be avoided

Due to their significant economic exposure, experts now recommend underweighting European equity markets. From this perspective, the war could hardly have come at a worse time, as they were just beginning to outperform: corporate profitability showed signs of improvement, but this may now be undermined by high energy prices.

The outperformance of emerging markets seen in recent years may be halted by a stronger dollar, rising interest rate expectations, and risks related to economic growth. At the same time, this may be partly offset by strong growth in corporate profits and improving valuations.

Within emerging markets, experts at OTP Bank consider Asia to be a relatively major loser of the war: the region is one of the largest buyers of Middle Eastern energy, and the Strait of Hormuz is a key transportation route for it, so any closure would worsen the outlook. In the short term, analysts believe the Indian market may be one of the most negatively affected by the war; however, it remains attractive with a long-term perspective, due to its relatively low valuation. In contrast, Latin America could benefit the most from the conflict, partly as a significant energy exporter and partly because of its more limited exposure to the Middle East.

The specter of stagflation is also emerging

Within emerging markets, Central and Eastern European equities were long considered the cheapest, but this discount has decreased in recent months. Moreover, companies in the region are also threatened by higher energy costs and potential special taxes that governments may introduce to offset rising expenditures.

The OTP Bank Investment Outlook also reveals that increasing inflation risks are tying the hands of central banks when it comes to cutting interest rates, and in the short term, the dangers of stagflation are also intensifying. This means that, instead of long-term government bonds, it is now much more advisable to shift toward defensive types of investments, according to analysts.

Raw materials are not necessarily a jackpot

Despite rising energy prices, neutral positioning is also recommended regarding the commodities market. According to Sándor Dávid, Head of the Multi-Asset Analysis Department at OTP Global Markets, long-term prospects are significantly determined by how long the war drags on and what economic damage it causes—something that is currently almost impossible to predict. Although in the worst-case scenario the conflict could escalate further and commodity prices could continue to rise, Sándor Dávid sees also a potential deescalation path, which would bring about a rapid correction, particularly in the oil and natural gas markets.

Regarding gold, experts at OTP Bank highlight that while war brings short-term volatility and risks, the long-term outlook remains positive. This is clearly linked to the global trend of high budget deficits and rising public debt.

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