KPPB Monthly Market Monitor – 06 EN

Monthly Market Monitor

June 2026

In a Nutshell

Our view on the markets

Waiting for a deal

Three months into the Iran conflict, the Strait of Hormuz effectively remains closed to date. The campaign planned by the US president to last for just a few weeks has since turned into a never-ending stalemate. The lifting of the internet blackout in Iran at the end of May presaged the start of a potential de-escalation phase. But for Donald Trump, who finds himself confronted with political hardliners on one side and ever-worsening public approval poll ratings on the other side, it’s imperative at all costs to avoid inking a bad deal that makes him look weak.

Unbroken momentum

Equity markets in recent weeks have soared from one new high to the next in spite of the Iran conflict and the creeping deterioration of the economic growth and inflation mix.

of the Month

Equity markets in recent weeks have soared from one new high to the next in spite of the Iran conflict and the creeping deterioration of the economic growth and inflation mix. The rally has been driven by technology stocks – the USA’s Nasdaq index has advanced by more than 30 % since the start of April. Some semiconductor stocks have even registered near-exponential shareprice gains. The corporate earnings outlook is solidly undergirding the rally, but from a technical analysis perspective, a pause to catch breath seems likely to occur at the least. The increasing speculative participation in the current rally by retail investors also makes certain signs of overheating discernible.

The trend arrow for government bond yields in developed-market countries has been pointing upward for five years now. For investors, this has since meant big price drawdowns in bad years and scant gains at the most in the better years. Yields have recently lurched upward again (and bond prices have headed downward) particularly on very long-dated interest-bearing securities. The cause of this is being blamed on a different problem for each respective country. For the USA it’s the Iran war and rising inflation expectations, for the UK it’s political instability, for Japan it’s the fiscal expansion being pursued by the Takaichi government, and for Germany it’s the planned stepped-up spending on defense. However, one monetary-policy factor is largely being ignored: the fact that central banks have substantially reduced their balance sheets in recent years. The total assets on the US Federal Reserve’s balance sheet, for example, have shrunk by 25 % since 2022. For the first time in 20 years, governments now find themselves facing tough fiscal constraints – central banks are no longer purchasing all debt securities or at least are no longer buying them at any price. In the market for British government bonds, where risk premiums on long-dated gilts have recently jumped sharply, a certain degree of stress is already discernible. In the USA and Germany, on the other hand, 10year sovereign bond yields are currently close to their fair value, i.e. they’re at the level of the respective countries’ long-term nominal potential rate of growth. Nevertheless, in light of the G7 nations’ budgetary policies, “more of the same” is ill-advisable.

Macro Radar

Taking the pulse of economic activity

Waiting for a deal

Three months into the Iran conflict, the Strait of Hormuz effectively remains closed to date. The campaign planned by the US president to last for just a few weeks has since turned into a never-ending stalemate, sprinkled with constant contradictory presidential tweets that alternate between hinting at a further escalation and promising an imminent resolution of the conflict. The lifting of the internet blackout in Iran at the end of May presaged the start of a potential deescalation phase. But for Donald Trump, who finds himself confronted with political hardliners on one side and ever-worsening public approval poll ratings on the other side, it’s imperative at all costs to avoid inking a bad deal that makes him look weak. Since, at the same time, there is no clear policy consensus within the Iranian regime, reaching a settlement – apart from securing a fragile ceasefire – has thus far proven to be an extremely challenging matter.

US consumer sentiment sinks to new low

The adverse economic effects of the ongoing geopolitical limbo are rapidly multiplying with differing degrees of severity depending on the region. Countries like Japan and South Korea that rely almost exclusively on energy shipments from the Middle East are particularly suffering from shortages of oil, natural gas, and key production inputs. The USA is in a better position thanks to its status of being energy selfsufficient, but prices at the gasoline pump are high in the Unites States as well, and consumer confidence there is worse than ever. The University of Michigan consumer sentiment index fell in May to a record-low reading of 44.8 points. This stands in stark contrast to the stock-market and AI boom. Although the AI frenzy is buttressing economic growth, the benefits of this –like the capital gains caused by rallying stocks – are accruing to only a small part of the population.

A 50 - 50 chance of an ECB rate cut

Sentiment in Europe has also darkened (once again) in recent weeks. Manufacturing surveys are foreshadowing a substantial slowdown in economic activity over the remainder of this year. Near-term supply and pricing problems due to the Iran conflict are being compounded by longer-term challenges caused by

manufacturing competition from China. To counter this “existential” threat, the European Union is now planning to systematically introduce import quotas and tariffs to shield especially endangered branches of industry. Meanwhile, the sharp spike in energy prices and its implications for the inflation outlook pose the current challenge facing the European Central Bank (ECB). Recent comments from various members of the ECB’s governing council reflect increased chances of a 25-basis-point interest-rate hike at the next centralbank policy meeting on June 11. However, predominantly sputtering employment markets in the large EU countries and the absence of signs of second-round effects currently give reason to presume that any policy rate hikes are likely to be rolled back within a reasonable period.

China needs more stimulus

After a series of surprises on the upside, even China’s economic growth figures have turned out disappointing lately. The weakness is attributable in part to the recent oil shock and to unfavorable year-on-year comparison base effects, but it also underlines how fragile and tentative the economic recovery in China continues to be. The recent cooling of economic activity may jolt Beijing out of its political lethargy. The probability of an implementation of additional near-term economic stimulus measures has increased.

However, predominantly sputtering employment markets in the large EU countries and the absence of signs of second-round effects currently give reason to presume that any policy rate hikes are likely to be rolled back within a reasonable period.

sentiment | Not without consequences for the midterm elections

consumer confidence (University of Michigan survey)

Sovereign

Corporate

Microfinance

Inflation-linked bonds

High-yield bonds

Emerging-market bonds

Insurance-linked bonds

Convertible bonds

Asset Allocation

Notes from the Investment Committee

USA

Japan

Emerging markets

Alternative Assets

Gold

Duration Hedge funds

Currencies

US dollar

Swiss franc

Euro

British pound

Equities: Unbroken momentum

• Equity markets in recent weeks have soared from one new high to the next in spite of the Iran conflict and the creeping deterioration of the economic growth and inflation mix. The rally has been driven by technology stocks – the USA’s Nasdaq index has advanced by more than 30 % since the start of April. Some semiconductor stocks have registered near-exponential share-price gains. The stock price of US-based chipmaker Micron Technology has climbed more than 200 % year-todate, giving the company a market capitalization north of USD 1 trillion by now. South Korea’s Kospi index, which is dominated by Samsung Electronics and SK Hynix, has risen twofold during the same period.

• The share-price advances are being driven by extraordinarily high profit growth rates not just in the technology industry, but also in the energy sector. Massively expanding investments in AI and higher energy prices have already prompted analysts to raise their 2026 and 2027 earnings estimates for the S&P 500 index by 8 % since the start of this year. This positive development has gained breadth in recent weeks and has even spread to other sectors in the US blue-chip index. In most years, consensus earnings estimates are overly optimistic at the start of the year and constantly get revised down

Structured products

Private equity

Private credit

Infrastructure

Real estate

Monetary / fiscal policy

Corporate earnings

Valuation

Trend

Investor sentiment

ward afterwards. This year evidently is different, which gives the equity bull market a more stable foundation.

• Nevertheless, the torrid share-price advances raise certain question marks about their sustainability, particularly since they have been propelled thus far by just a handful of sectors. In the case of the S&P 500 index, around 85 % of the gains thus far this year are attributable to the AI trade. From a technical analysis perspective, a pause to catch breath or a consolidation phase seems likely to occur at the least. The US semiconductor index (SOX) was trading around 70 % above its 200-day moving average line at last look – the only time the index’s momentum was more overstretched was just before the top and subsequent crash during the internet bubble in the year 2000. The increasing speculative participation in the current rally by retail investors also makes certain signs of overheating discernible.

In the case of the S&P 500 index, around 85 % of the gains thus far this year are attributable to the AI trade.

Due to the oil price shock and the surprisingly sharp spike in core inflation, the yield on 2-year US Treasury notes has risen by more than 50 basis points since Warsh’s nomination in January.

• However, the sound fundamentals, valuations that are not (yet) overextended, and a more or less neutral monetary policy mean that there are insufficient arguments for an abrupt end to the bull market. The third aforementioned point is particularly relevant: in the past it usually took multiple interest-rate hikes by central banks to stop a bull market. Keep an eye, though, on the planned initial public offerings by SpaceX and OpenAI. Not only are they bound to tap a lot of capital, but they may also exert selling pressure on other technology stocks as a result of recently amended index rules and the growing prominence of passive investing (ETFs).

Fixed income: US yield curve under upward pressure

• Kevin Warsh took over the helm of the US Federal Reserve in May. Upon assuming office, he spoke out in favor of shrinking the Fed’s balance sheet. In return, to offset the resulting tightening of financing conditions on the capital market, Warsh would like to lower the federal funds target rate. The capital market, however, doesn’t believe at the moment that he will succeed in that endeavor. Due to the oil price shock and the surprisingly sharp spike in core inflation, the yield on 2-year US Treasury notes has risen by more than 50 basis points since Warsh’s nomination in January. Market participants by now are anticipating a quarter-point policy rate hike instead of two federal funds rate cuts by the end of 2027. But US yields are under upward pressure not just at the short end of the curve. In the mediumterm maturity segment, jumbo bond issues by US hyperscalers are enlarging the supply of debt securities on the market, which is likewise pushing up yields. At the long end of the curve, the upward pressure is coming from concerns about the USA’s deteriorating fiscal situation. However, the risk-reward tradeoff on long-term government bonds has become attractive now that the yield on 10-year US Treasurys climbed to almost 4.7 % for a time in midMay. The inflation shock caused by the Iran conflict really is likely to be of a transitory nature this time, which portends lower yield levels in the medium term.

Alternative assets: The added value of

private markets

• The discussion about the risks of private credit funds has simmered down a bit in recent weeks, but the problem still exists: since evergreen private credit funds with no fixed termination date exhibit only limited liquidity, those investors wishing to sell sometimes have to wait a very long time to cash out their capital when too many other investors also

want to exit at the same time. What is designed to act as a protection against fire sales and ultimately benefits investors often nonetheless causes frustration among them and, in the worst case, unjustly casts a bad light also on other private-market asset categories. Take venture capital, for example: If SpaceX followed by OpenAI later on this year debut on the stock-market trading floor with multi-billion- or trillion-dollar enterprise valuations, they will already rank among the world’s largest companies. The further upside potential for their stock prices is accordingly small for those investors who weren’t able to participate in those technology companies’ business prospects before their IPOs. In contrast, anyone who was able to acquire an equity stake during an earlier stage of these growth stories now enjoys handsome share-price gains. Private investor access to opportunities of this kind has improved considerably in recent years. However, interested investors should pursue diversification in the venture capital space even more so than elsewhere because the majority of startups fall by the wayside in their first years. Widely diversified evergreen funds focused on venture capital and growth companies are the better alternative. Here too, however, keep the restricted liquidity of these vehicles in mind. A time horizon of three to five years should be in place, and one should only invest money that doesn’t need to be withdrawable within 12 months.

Currencies: (Surprisingly) little dollar movement

• Since rapid policy-rate cutting under new Fed Chairman Kevin Warsh has become rather improbable lately and since interest-rate expectations in the USA have been edging upward, the US dollar index had a tailwind behind it in May. From a bird’s-eye perspective, though, the performance of the greenback looks different and eminently unspectacular: on the bottom line, it has merely treaded water over the past year. Its corresponding trading range, which has a fluctuation bandwidth of just 5 %, is extremely narrow in historical terms. As so often happens, the intermittent negative headlines, some of which were very grim and reflected deep pessimism about the US currency, turned out to be a good contrary indicator. There is little pointing to breakout from this trading range for the time being. But if that technical signal does get sent, one could expect to see a major trend movement. From a valuation standpoint, the US dollar is still overpriced, so a new depreciation trend is slightly more probable than not.

Gold is commonly considered a safe haven in times of crisis. Hence, precisely in times of elevated geopolitical uncertainty, studies purporting to provide evidence of gold’s defensive properties for investment portfolios get passed around freely. The yellow precious metal indeed has performed well during many crisis periods, but one would have to doctor the statistics to attest a 100 % success rate for gold’s insurance protection. Exceptions confirm the rule, and the ongoing Iran conflict appears to be one such exception. After the start of the crisis in early March, the price of gold initially headed downward and has since been trending sideways lately. During the same period, the price of Bitcoin has risen substantially – digital gold was the better hedge. This latest episode once again shows that broad diversification is the best way of bracing oneself against geopolitical crises. Whether it necessarily has to be cryptocurrencies to diversify a portfolio is something that each investor must decide individually on the basis of his or her appetite for risk. With hedge funds, private-market assets, real estate, and commodities, there is an array of established diversification alternatives besides cryptocurrencies.

Chart in the Spotlight

The Back Page Asset Classes

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