Market overview
For a long time it was looking like it was going to be a quiet week in terms of Middle East conflict news flow. Then came US President Trump, who indicated the US naval blockade of the Strait of Hormuz, a vital shipping channel, could last for months. Cue a surge in the oil price to US$125+. The threat of a more severe and long-lasting global inflationary shock suddenly became more real. And yet, global equities finished the week higher.
That might be because stock markets are becoming less sensitive to Trump’s on-off missives on the conflict. But it could also be down to good news on other fronts too. For with the conflict seemingly in a frozen state what with the ceasefire between the US and Iran (just about) holding, the Strait of Hormuz still effectively shut, and no new peace talks in the pipeline, market focus was able to switch to other matters, notably the Q1 earnings season and the artificial intelligence (AI) trade.
Best quarter in five years?
By 1 May 2026, almost two thirds (63%) of companies in the main US market had posted Q1 earnings reports, according to FactSet. Of these, 84% had reported a positive earnings surprise, while 81% delivered a positive revenue surprise. The data provider estimates a blended (year-over-year) earnings growth rate for the main US stock market of +27.1% for Q1 2026 which, if hit, would be the highest earnings growth rate since Q4 2021 (32.0%). A positive earnings season going some way towards offsetting the negative that is the Middle East conflict then.
A more discerning AI-trade?
Among those US companies reporting during the week, five of the Magnificent Seven, Meta, Alphabet, Microsoft, Amazon and Apple—four reported on 29 April 2026, Big Tech’s Big Wednesday. The ‘Five’ generally met or beat expectations but that didn’t mean all enjoyed share price rises. Shares in Meta fell despite a 33% jump in Q1 revenues to US$56.3bn. By contrast Alphabet’s shares were in demand after a forecast-beating 22% increase in revenues to US$110bn. The reason for the diverging share prices? Strong demand for Alphabet’s AI and cloud products suggests the huge sums it is investing are starting to pay off; while for Meta, the jury is still out. The takeaway? While the market appears to be a tad more discerning, overall, the AI trade remains alive and well.
An unwelcome trend?
One general negative in what has been a strong earnings season so far, a growing number of companies have mentioned prices in their earnings calls, specifically the need to raise these to mitigate cost pressures as a result of the Middle East war. Mentions of “pricing action” and “passing on costs” are at their highest levels since the onset of the Russia Ukraine war in 2022, according to the Financial Times.
Even its frozen state, or rather because of it, there’s just no getting away from the Middle East crisis.
Weekly market moves:
The MSCI All Country World Index (MSCI ACWI) ended the week with a 0.8% gain—year-to-date (YTD) the index is now up 7.1%.
United States:
For the fifth week in a row, the main US stock market closed up (+0.9%), bringing the YTD gain to 6%. This week it was large-cap value stocks (+1.4%) leading the way thanks in part to a buoyant energy sector on the back of the surging oil price. Growth caps could only muster a 0.2% weekly gain, while small caps were up +1%. YTD, small-caps are up +13.8%, value +10.2% and growth +1.6%.
As expected, the Federal Reserve (Fed) kept interest rates on hold. Less expected was a slightly more hawkish tone to the Fed’s accompanying statement. The statement that the Federal Open Market Committee (FOMC) continues to hold an easing bias came as no surprise. News that three FOMC members disagreed with the use of easing language was unexpected, however. A total of four dissenters (another called for a rate cut) represented the largest number seen during Jerome Powell’s chairmanship of the Fed. It will be interesting to see if the hawkish tilt remains for the next FOMC meeting which will be the first chaired by Trump’s nominee Kevin Warsh.
Higher oil prices and the FOMC’s hawkish overtures meant US Treasuries were on the backfoot: the yield on the 10-year Treasury rose seven basis points to 4.37% (up 20 basis points YTD); while the 2-year Treasury yield was up 10 basis points to 3.88% (up 41bps YTD).
United Kingdom:
UK large caps ended the week just -0.1% lower (+5.6% YTD). Mid-caps were off by the same small amount (+1.5% YTD). The yield on the 10-year gilt moved modestly too, rising five basis points to 4.96% (up 49bps YTD). That was despite a Bank of England (BoE) statement noting the Monetary Policy Committee (MPC) “stands ready to act as necessary” to tackle the “highly uncertain” energy price environment. The statement followed news that the MPC had voted 8-1 to hold interest rates at 3.75%. A cut to the BoE’s growth forecasts to 0.7-0.8% for 2026 and 0.8-1.0% for 2027 from 0.9% and 1.5% respectively may have gone some way to offsetting rate-hike concerns the gilt market may have.
The bond market also had to contend with ongoing uncertainty around the future of Sir Keir Starmer’s premiership, an issue that’s unlikely to go away anytime soon with local elections due to be held on 7 May. Sterling doesn’t seem overly worried after ending the week at US$1.36 compared to US$1.35 previously.
Europe ex UK:
The MSCI Europe ex-UK Index finished the week in positive territory, just. A 0.1% gain meant YTD the index is up 3.4%. At the national level, stock markets were mixed: Italy was the standout with a +1.2% rise (+8.5% YTD), closely followed by Germany’s 0.7% increase (-0.8%); while France was down -0.2% (+0.3% YTD) and Switzerland 0.3% lower (+1.6% YTD).
The euro meanwhile was largely unchanged against the dollar at US$1.17. That may be down to the latest European Central Bank (ECB) meeting. While the ECB held rates at 2% as expected, the central bank acknowledged that the governing council had discussed raising rates “at length and in depth” in response to the risks to the eurozone’s economy posed by the Middle East conflict. Like UK gilts, the 10-year German Bund yield increased modestly, up five basis points to 3.04% (up 18bps YTD).
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