Despite geopolitical tenstions: equity markets at record highs
April was dominated by rapidly shifting headlines surrounding the Iran conflict, yet financial markets appeared remarkably indifferent. Despite ongoing tensions, disrupted energy flows, and repeated threats around the Strait of Hormuz, investors largely chose to look through the geopolitical noise. Even what has been described as the largest global energy shock in history failed to meaningfully derail risk appetite. US equity markets not only recovered from early shocks but climbed back above pre‑conflict levels.
The month began optimistically with a two‑week ceasefire announcement between Iran and the United States, triggering a sharp rally in risk assets and one of the largest single‑day declines in crude oil futures on record. However, optimism was quickly tested. The very first day of the ceasefire saw renewed attacks on critical Saudi energy infrastructure, intensified Israeli air strikes, and Iran once again closing the Strait of Hormuz. Diplomatic signals fluctuated throughout the month, and clarity on whether shipping routes were open or closed often changed daily. Declaring lasting peace was clearly premature.
So why did markets continue to rise despite this fragility? A key driver has been the continued dominance of artificial intelligence‑related stocks. Outside of the AI‑focused “Magnificent Seven” – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Broadcom – the broader S&P 500 has effectively gone nowhere. These few stocks are carrying the market, as investors remain eager to buy nearly anything associated with AI, even when fundamentals are uncertain. At the same time, market breadth has weakened significantly: fewer than half of S&P 500 constituents are near recent highs, and participation across sectors is increasingly narrow.
With geopolitical resolution still distant, investors have leaned heavily on corporate earnings for reassurance – and so far, earnings have delivered. This season is shaping up to be one of the strongest in years, despite weakness in parts of the software sector. Markets remain focused on profits and liquidity flows, which helps explain their resilience in the face of prolonged conflict and higher oil prices. While the old adage “Sell in May and go away” sounds tempting, history suggests otherwise: over the past decade, returns from May through October have been solid, with May and July often among the stronger months.
Global Economy
USA
Economic data released in April suggested that the U.S. economy remains resilient, though momentum continues to cool gradually. Labor market conditions stayed relatively firm, but job growth slowed from the strong pace seen in March. Payroll gains came in at around 140,000 jobs, broadly consistent with a normalization trend after last year’s robust employment expansion. The unemployment rate held steady at 4.3%, indicating that while labour demand is easing, and layoffs remain contained. Employment growth was again led by healthcare and construction, while hiring in retail and leisure showed signs of fatigue, reflecting softer consumer demand.
Inflationary pressures remained elevated, driven primarily by higher energy prices. Gasoline prices rose noticeably across the U.S. during April, with average pump prices climbing above $4 per gallon in several states. Elevated oil prices continued to feed through to transportation, logistics, and certain services, reinforcing short-term inflation concerns. Consumer surveys pointed to rising inflation expectations, particularly related to fuel and utility costs, which risk feeding into wage demands later in the year. Core inflation showed little improvement, highlighting persistent pricing pressures beyond energy.
On the growth front, GDP indicators pointed to continued expansion, albeit at a moderate pace. The most recent estimates still suggest U.S. growth of around 2.3–2.5% for 2026, supported by steady employment and resilient business investment. However, high input costs and tighter financial conditions are beginning to weigh on profit margins in energy‑intensive sectors, while real consumer spending growth appears increasingly vulnerable to rising living costs.
Europe
European economic data point to a fragile macroeconomic environment characterized by rising inflation, diverging labor‑market trends, and subdued growth momentum. The euro‑area unemployment rate stands at 6.2%, slightly lower than previous month, still indicating labor‑market resilience. Beneath the surface, some conditions have deteriorated in key economies. Most notably Germany, where unemployment has risen to 6.4%, reflecting growing stress in energy‑intensive and export‑oriented sectors. While Germany has announced ambitious fiscal measures aimed at reigniting growth, the impact of the US–Iran conflict, particularly elevated energy prices and Europe’s continued dependence on energy imports, has so far limited their effectiveness and weighed on economic activity.
Inflation pressures last month have meaningfully intensified. Euro‑area headline inflation increased to 3.0% year‑on‑year in April, up from 2.6% in March and clearly above the ECB’s target. This acceleration has been driven primarily by a sharp rise in energy prices, with oil and gas costs up by roughly 11% year‑on‑year, feeding through to transportation, production, and consumer prices. Growth dynamics remain weak, with euro‑area GDP expanding by just 0.1% quarter‑on‑quarter in the first quarter of 2026, underscoring a near‑stagnation backdrop. Germany, Italy and the UK face meaningful downside to gross domestic product, as gas prices sit at the margin of their power systems, amplifying inflation and squeezing growth.
Looking ahead, Europe’s economic outlook is closely tied to the trajectory of the conflict in Iran. A swift resolution would significantly reduce downside risks by easing energy prices, restoring confidence, and allowing fiscal support to translate more effectively into real growth. In such a scenario, the current inflation shock would likely prove temporary, with limited long‑term damage to economic activity. Conversely, a prolonged conflict would continue to weigh on prices and further restrain growth, particularly in energy‑dependent economies, reinforcing the fragile balance between inflation and stagnation across the euro area.
Asia
As in many countries in the world, inflation pressures have also increased in Japan. Headline consumer prices rose 1.5% year‑on‑year and core inflation reached 1.8%, largely reflecting higher energy and transportation costs stemming from the Iran conflict and persistently elevated oil prices. Although inflation is still below the Bank of Japan’s 2% target, forward‑looking indicators and official projections point to growing upside risks should energy prices remain high. Economic growth, meanwhile, remains subdued. Japan’s economy recorded around 0.3% quarter‑on‑quarter growth in Q1 2026, narrowly avoiding a contraction, but the outlook has softened with full‑year GDP growth now expected at roughly 0.5–0.7%, as higher import costs continue to erode real household incomes and compress corporate margins.
However, Prime Minister Sanae Takaichi’s expansionary fiscal strategy, including inflation relief, energy subsidies, major stimulus spending, and investments in economic security, defence, and critical technologies has reinforced investor confidence and supported domestic demand. Japanese stocks have continued to rally strongly, supported by global demand for AI‑ and semiconductor‑related names, improved corporate governance, and confidence in the government’s pro‑growth agenda. The Nikkei 225 reached new all‑time highs in April, climbing to nearly 60,000 and gaining more than 70% over the past 12 months, making Japan one of the best‑performing major equity markets globally.
Shares
U.S. equities delivered their strongest monthly performance in several years, despite ongoing war in Middle East. US indices finished April at record levels as investors shrugged off war-induced inflation fears and doubled down on the view that the AI boom will generate substantial gains for large technology companies. The S&P 500 recorded its best monthly advance since November 2020. But rally was led by technology shares, with the Nasdaq Composite jumping 15% and marking its strongest month since April 2020. Smaller stocks also benefited from the risk‑on sentiment, as the Russell 2000 notched its best monthly performance since late 2024. All members of the Magnificent Seven ended the month in positive territory, with Alphabet (GOOGL) up 33.9% and Amazon (AMZN) gaining 27.3%, standing out as the strongest performers within the group.
While the theme remains highly concentrated and not without risk, the case for semiconductors does not appear exhausted yet. The key support is earnings visibility: chipmakers are the most direct beneficiaries of the AI boom and enjoy significant pricing power as hyperscalers compete to secure scarce compute capacity. Earnings expectations for the sector have been sharply revised higher in recent weeks, and as markets ultimately follow earnings, share prices have responded accordingly. Although valuations have risen meaningfully alongside performance, they remain broadly digestible, particularly among names that have not recently gone parabolic. Even after gains of several hundred percent, parts of the sector still trade on single‑digit forward P/E multiples, suggesting the rally may still have further room to run.
Technology was the clear driver of outperformance (Stoxx 600 Technology Index rose 13.79% in April). It was supported by AI‑driven capital expenditure and strong semiconductor earnings from ASML, ASM International, STMicroelectronics, and Soitec, alongside resilient software results from SAP. Strength in U.S. “Magnificent Seven” AI‑related stocks further reinforced sentiment spillovers into Europe, underpinning broader risk appetite across regional equity markets.
Bonds
The 10‑year yield rose modestly over April, ending the month around 4.39%, up roughly 5–10 basis points versus late March levels. Yields were volatile throughout the month, reacting to developments in the Middle East, elevated energy prices, and persistent inflation concerns. The 30‑year yield also moved higher, closing April near 4.98%, representing an increase of approximately 5–7 basis points over the month. Long‑dated yields remained sensitive to rising term premia, heavy Treasury issuance expectations, and geopolitical risk linked to the Strait of Hormuz, though gains were more contained than at the front end of the curve.
Federal Reserve officials left interest rates unchanged, but the meeting revealed a growing divide over the future policy path. Four officials dissented, including three who objected to language in the post‑meeting statement suggesting that rate cuts would eventually resume. In principle, central banks are advised to look through inflation driven by supply shocks, such as geopolitical conflicts. Chair Jerome Powell additionally confirmed that he intends to remain on the Fed’s Board of Governors after stepping down as chair. As a result, when Kevin Warsh assumes the chairmanship, there will be no vacancy for President Trump’s ultra‑dovish interim appointee, Stephen Miran. In the near term, this implies a slightly more hawkish Federal Open Market Committee than would otherwise have been the case. More broadly, the institution is arguably better served with Powell remaining as a governor than leaving public service altogether.
European government bond markets came under renewed pressure in April. German 10‑year Bund yields rose by roughly 40 basis points over the month, ending close to 3.0%, while French 10‑year yields increased even more sharply, by around 45–50 basis points to levels near 3.7%. The move has been driven primarily by surging energy prices linked to the Middle East conflict, which have pushed euro‑area inflation back toward 3% and raised fears of a more persistent inflation shock. Against this backdrop, market expectations for ECB policy have shifted decisively: investors are now pricing a very high probability (around 76%) of a 25‑basis‑point rate hike at the ECB’s June meeting, as policymakers prioritize inflation credibility over near‑term growth risks. For the investment outlook, the combination of rising sovereign yields, renewed term premia and a more hawkish ECB stance suggests tighter financial conditions ahead, with continued volatility in rate‑sensitive assets and a higher bar for duration exposure in European portfolios.
According to investors, the latest problem group in Europe’s sovereign debt markets is the so‑called “BIFs” – Britain, Italy and France. These three countries have suffered the largest increases in borrowing costs among major European bond markets since the outbreak of the Middle East conflict on February 28. Even after a partial recovery, 10‑year UK and Italian bond yields remain at least 50 basis points higher, while French yields are up around 46 basis points. By comparison, German Bund yields have risen by roughly 39 basis points over the same period.
Commodities & Currencies
With global copper inventories are already strained, and the medium‑to‑long‑term outlook points to a widening mismatch between supply and demand. Rapid electrification, the expansion of renewable power generation and massive investment in grid infrastructure are set to drive copper consumption steadily higher, while mine output and recycling are unlikely to keep pace. Forecasts suggest that by the mid‑2030s, demand could exceed available supply by several million tones. Although higher prices are restoring the appeal of new mining projects, most require sustainably elevated copper prices, which are well above current levels, to be economically viable. As a result, rather than anticipating a meaningful correction, the balance of risks points toward continued, albeit gradual, price appreciation over the coming year.
By the end of April the oil market showed pronounced backwardation, highlighting severe short‑term supply constraints and intense competition for immediate deliveries. While prices softened modestly in early May on signs of tentative geopolitical de‑escalation, the developments over April clearly demonstrated the market’s high sensitivity to geopolitical risk. Despite some easing, a meaningful risk premium remained included in prices by month‑end, reflecting continued uncertainty about the pace at which disrupted energy flows could be restored and pointing to ongoing volatility in the period ahead. The U.S. dollar is drawing support from improved sentiment toward U.S. equities and from the relative insulation of the U.S. economy against higher energy costs. While the recent narrowing of interest‑rate differentials between the U.S. and other currencies may initially appear like a headwind for the dollar, we believe this factor is less influential in the current environment. In energy‑importing regions such as Europe and parts of Asia, rising rate expectations are increasingly seen as a potential drag on already fragile growth, rather than as a currency positive. If the Strait of Hormuz were to reopen in the near term, demand for the dollar as a safe‑haven asset could ease, leading to temporary dollar weakness. However, such a move is unlikely to be sustained, as markets are likely to quickly shift their focus toward the prospect of interest‑rate cuts outside the U.S. aimed at cushioning further economic slowdown, a dynamic that would ultimately.
Source: www.bendura.li
Aleksei Andrievskii is the founder of the ANDRIEVSKII SEA WEALTH family office in Cyprus, a member of the advisory board at Bendura Bank AG, Liechtenstein