Global risk radar
•While the triggers for volatility may change over time—ranging from shifting central bank policy to geopolitical events—the need for a robust, adaptable investment approach remains. Rather than attempting to predict the future, investors can prepare for a range of outcomes by buildin portfolios that are resilient across downside, base, and upside scenarios.
• This publication outlines practical strategies to help investors mitigate downside risk, enhance returns in a base case environment, and boost participation in market upside. Each approach is designed to be actionable and relevant, regardless of how the market evolves.
Recap: CIO House View scenarios
What’s our base case?
Our base case is that equities will move higher over the next. 12 months. For example, we expect the S&P 500 to reach 8,200 by June 2027. We remain mindful of a range of risks,but expect continued strength in AI capital expenditure, a resilient US economy, ongoing fiscal spending around the world, and strong credit creation to continue to support corporate earnings growth and markets more broadly. We expect traffic through the Strait of Hormuz to resume gradually, although it probably needs 2-3 months to approach pre-crisis levels. Brent crude oil should continue to trade above pre-crisis level for the remainder of the year.
We think that economic growth is likely to dip below trend this year. In our assessment, US GDP could largely weather the recent energy shock and still grow at or just below the trend rate of 2%; however, oil-importing countries in Europe and Asia are likely to experience some economic weakness. Headline inflation is likely to rise in the near term, but inflation expectations should remain anchored around central bank targets. While the ECB is expected to hike rates in 2026, the Fed is likely to resume its rate-cutting cycle only in early 2027. We see mid-single-digit upside for major equity indices over the next 12 months. Fixed income investments should
remain supported as well, as bond yields have room to move ower by year-end and beyond.
What are the key risk cases?
In an environment of high policy uncertainty, it is important to consider alternative market outcomes.
Bull case (20%): An upside scenario would involve a quick reopening of the Strait of Hormuz and transit activity showing clear signs of advancing toward pre-war levels by the end of July 2026. Oil prices stabilize below USD 80/bbl and the geopolitical risk premia diminishes quickly. Furthermore, Investment spending and AI adoption could exceed expectations, leading to better-than expectedrevenue growth or productivity gains from AI applications. Major equity indices could then generate double-digit returns for the balance of the year.
Bear case (20%): In a negative scenario, Severe disruption of oil flows through the Strait of Hormuz continues for another 3-6 months, and/or widespread destruction of energy infrastructure in the Middle East. Brent crude prices spike toward USD 150-200/bbl in the next three months followed by a drop due to demand destruction. Another key risk is that investors lose confidence in the durability of AI capex or in the economy’s ability to convert that into profit. AI monetization may decline, or AI-related investment could slow due to “capex indigestion” or disruptive technologies. In this scenario, equities are likely to experience double-digit
drawdowns