Anastassios Frangulidis, Head of Multi Asset and Chief Strategist at Pictet Asset Management in Zurich, had expected the rate hike in the euro area. He describes the move as a «dovish hike,» meaning that future policy decisions will also place significant weight on the weakening economic outlook.

Following the outbreak of the war in Iran, expectations for policy rates were revised sharply higher. In the United States, Frangulidis believes that markets are justified in pricing in an additional 25-basis-point rate increase over the next twelve months. As for the Swiss National Bank, no further rate changes are expected this year, he told investors in Zurich during a market outlook presentation for the second half of 2026.

Uncertainty About Warsh’s Thinking

«We still do not know how Kevin Warsh thinks,» Frangulidis said. He expects the Federal Reserve’s Federal Open Market Committee to continue placing significant emphasis on labour market developments alongside inflation when making policy decisions. Given the United States’ substantial financing needs, he currently sees little room for the balance-sheet reduction that the new Fed Chair had advocated in the past.

Frangulidis noted that economists have revised both growth and inflation forecasts since the outbreak of the Gulf conflict at the end of February. Globally, inflation projections have increased by around 0,5 percentage points to 2,5 percent, while growth expectations have been lowered by 0,2 percentage points to the same level.

Although GDP forecasts for both the United States and Europe were cut by 0,3 percentage points, the reassessment of inflation differs considerably. Inflation expectations in the United States rose by 0,5 percentage points, compared with an increase of 1,0 percentage point in Europe. The Pictet strategist expects inflation to continue rising over the course of the year.

Reasons for Optimism

Overall, the outlook presented by Frangulidis remains cautiously positive.

«Our expectations are based on the assumption that there will be no further escalation and that the blockade of the Strait of Hormuz can be lifted,» he said.

Despite rising inflation, there are grounds for expecting an economic recovery. In the United States, growth is increasingly being driven by corporate investment rather than private consumption. Investment in artificial intelligence, in particular, is becoming more important. Exports are also contributing positively, while investment in real estate remains weak. In Europe, consumer sentiment has been hit hard by the Middle East conflict and high energy prices.

Valuations Not Extreme

Frangulidis described overall valuations in the US equity market as high, though not excessive. On a twelve-month forward basis, the price-to-earnings ratio stands at 17,7 for the broader market and 21,1 for the S&P 500. He pointed to the significant improvement in global earnings growth and the sharply rising profit margins of US companies.

During the second half of the year, the global economy is expected to grow broadly in line with its potential, albeit at a slower pace than previously anticipated. Europe is suffering more than the United States from the consequences of the Middle East crisis.

Pictet remains overweight equities. «However, we want to keep risks under control and will not allow our equity allocation to increase further,» Frangulidis said. The firm continues to favour emerging-market equities as well as stocks in the information technology and industrial sectors.