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Portfolio construction

Model Portfolio Pulse: A broader market emerges

July 21, 2026 - 3 min
Brian Hess
Portfolio Manager – Natixis Investment Managers

There are two big fundamental developments in markets during June. First, oil prices fell 18% after the US and Iran reached an agreement mid-month, and, second, Federal Reserve Chairman Kevin Warsh held his inaugural Federal Reserve meeting. Counterintuitively, the net effect was for an increase in interest rates despite the big fall in oil prices.

That said, the US economy remains strong, and the Fed might not need to raise interest rates after all, especially if June's employment report, which was quite soft, becomes a trend.

This keeps us constructive on risk assets, and model positioning hasn't changed since last month. We're still overweight stocks, underweight bonds, overweight US stocks thanks to their strong earnings power, and underweight international stocks since we do feel like the US dollar could strengthen further from here.

We're looking for opportunities in US small caps, in regional banks, and at the longer end of the yield curve after the backup and interest rates.

For more of our thinking, check out this month's Model Portfolio Pulse.

Markets delivered a mixed performance in June, as mega-cap and growth stocks struggled while value stocks and small-cap stocks rallied. Momentum stocks remained strong, led by semiconductors, while international equity markets were pressured by a stronger US dollar. Oil prices continued to decline after the US and Iran announced an agreement in mid-June, but bond yields showed limited relief, with the 10-year Treasury yield barely moving and 2-year yields rising. Against this backdrop, Natixis model portfolios maintained a modest equity overweight while monitoring opportunities across equity markets and fixed income.

Key takeaways

  • Small caps and value stocks led a broader market rally
  • Strong momentum in semiconductors continued to support artificial intelligence (AI)–related stocks
  • Interest rates may become less of a headwind for equities
  • Natixis model portfolios maintained a modest equity overweight

Broader market leadership creates opportunities

June saw a shift in market leadership beneath the surface. While mega-cap and growth stocks struggled, value stocks and small caps rallied, and momentum stocks continued to outperform, led by a 9% gain in semiconductors. International equity returns were more subdued as gains in local markets were largely offset by a stronger US dollar, while Chinese equities continued to face pressure from disappointing economic growth and earnings trends.

Despite another sharp decline in oil prices, bond yields were little changed, and markets are still pricing in one rate hike from the Federal Reserve by year-end. But with the big drop in oil prices, most inflation measures should soon start to decline in year-over-year terms, which means interest rates may become less of a headwind for stocks going forward. That, plus a persistently strong US economic backdrop, means the environment remains constructive for equities. Recent outperformance by small caps and value stocks is consistent with this setup.

At the same time, investors continue to monitor the momentum trade that has fueled AI-related stocks this year. A meaningful reversal in that trend remains one of the most important risks for markets and could have implications for leadership across equity sectors.

Natixis model portfolio positioning

A positive investment outlook continues to support a modest equity overweight, although the strong rally since late March and parabolic price action in some areas of the market argue against taking a more aggressive stance.

Small caps and regional banks remain areas of interest as market participation broadens, while longer-term bonds are also drawing attention as yields move back toward the upper end of their multi-year range. Our active equity managers have faced headwinds from the underperformance of high-quality stocks and the continued strength of momentum-driven names. A pullback in momentum exchange-traded funds could present an opportunity to add ballast against the current underweight to the momentum factor.

At month-end, model positioning was characterized by:

  • Slightly overweight stocks vs. bonds
  • Overweight US stocks 
  • Tilted toward growth stocks vs. value stocks 
  • Slightly underweight developed market international stocks 
  • Slightly underweight emerging market stocks
  • Neutral duration 

Read important disclosures

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All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

Diversification does not guarantee a profit or protect against a loss.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers or any of its affiliates. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

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