by Shannon L. Saccocia, CFA, Chief Investment Officer - Wealth, Neuberger Berman
As the conflict in the Middle East enters its third week with no clear sign of de-escalation, the market’s response has been telling—not for its drama, but for its deliberateness.
There has been no full-scale flight to the traditional safe havens, no emphatic rotation back into mega-cap technology stocks, and no indiscriminate selling of risk. The S&P 500 remains less than 3% off its record high of January 27.
What we are seeing instead is more incremental and selective repositioning than any comparable stress episode in recent years, implying that investors are already looking past the immediate disruption toward what the second half of the year might look like, and asking more carefully what should be owned in that environment.
We came into 2026 already less constructive on beta than consensus—our expectation was always that dispersion would define returns, a view we set out in our Solving for 2026 and in the Asset Allocation Committee's first quarter outlook.
The AI-driven fears around business model obsolescence that rattled markets earlier in the year, and the Middle East conflict that followed, have reinforced that thesis on two separate fronts. On both, investors who fared better were those already structured for a world of diverging fortunes rather than a rising tide.
Precision Over Participation
A beta-driven portfolio is a view that broad exposure captures enough upside to justify undifferentiated risk. A dispersion-oriented portfolio takes a different view: Where you are invested matters far more than how much risk you are carrying. The market appears, tentatively, to be reaching the same conclusion.
We are not seeing the typical full-scale rotation back into mega-cap technology—there is some buying in those names, but it is selective. The semis-versus-software trade has begun to reverse, with capital moving into software while semiconductors remain under pressure. Safer havens—certain sovereigns, certain large-caps—are seeing inflows, but not uniformly. As such, it feels more prescriptive and deliberate, and we think that is a positive signal. Our view remains that growth will materialize in the second half, but perhaps not in the form originally anticipated.
This week’s Federal Reserve and other major central bank meetings come against a backdrop that has shifted materially since their last meetings. The divergence in policy paths is itself generating dispersion across fixed income and currency markets.
Adding to the complexity, Brent crude has moved wildly on the back of the conflict, rising above and falling back under $100 per barrel depending on the news flow. A sustained break above that level cannot yet be dismissed—with significant implications for inflation expectations, rate-cut timelines and the disinflationary tailwind that has underpinned fixed income and equity markets over the past 18 months.
It is precisely this layering of macro complexity onto geopolitical uncertainty that makes selective positioning both more demanding and more rewarding.
Where We See Opportunity
Coming into this year, we leaned selectively into risk—rotating away from U.S. mega-caps toward small and mid-caps and emerging markets, and in fixed income, capturing opportunities in non-U.S. duration and U.S. credit. Commodities, private markets and absolute return strategies also took on an increasingly central role. Many of these positions still stand, and we maintain our selectively pro-risk stance, but recent events have made the landscape materially more complex.
In U.S. equities, the broadening-out trend toward small-caps and cyclicals has momentarily stalled, but the underlying logic remains sound and the pullback has improved entry points. The difference between owning the right and wrong parts of the U.S. market is, in the current environment, considerable. In fixed income, the opportunity is centered on intermediate maturities, where spread-widening in quality issuers has created entry points and the duration profile limits sensitivity to any inflation overshoot.
Within emerging markets, the opportunity is compelling, but demands precision. Despite a well-worn perception that EM is inherently the high-risk allocation in a stress environment, it is increasingly an area where investors are genuinely considering adding positioning even as the broader mood remains risk-off. China’s structural pressures and energy import profile give us pause. Brazil, in contrast, benefits from relative energy independence and domestic demand dynamics, leaving it insulated from the supply-side pressures weighing on energy-importing peers. What’s more, while the Gulf Cooperation Council countries warrant caution in the near term, a fiscal position strengthened by elevated oil revenues leaves the region generally well placed to accelerate its longer-term capital-market ambitions.
Structure Over Instinct
The incrementalism visible in markets may reflect fatigue—or something more substantive: a genuine reassessment of the economic foundation that explains why the typical full-scale rush back into risk has not materialized. This week’s central bank decisions will help clarify the picture, but are unlikely to resolve it entirely.
That makes portfolio construction, not market timing, the critical variable. Diversification here is not simply a risk management tool—it is an active return driver, ensuring that exposure to where opportunity is opening up is not diluted by indiscriminate holdings elsewhere.
Across public equity, private markets and fixed income, that points consistently toward quality—pricing power, balance sheet resilience and low sensitivity to energy-cost pass-through. In a dispersion regime, the allocation structure is the alpha source, not the market call—and 2026 has now delivered two sharp reminders of that truth.
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