Since our last investment report at the end of March, markets have regained some positive momentum, supported by developments in the Middle East. Over the past week, we have seen broad-based gains across the US, Europe, Japan and emerging markets, largely reflecting easing geopolitical risks and growing optimism ahead of the upcoming US corporate earnings season.
The MSCI All-Countries World Index rose just over 4.0% over the week. In the US, the S&P 500 gained 4.5%, while the Nasdaq Composite advanced 6.8%. Smaller companies also performed strongly, with the Russell 2000 rising 5.6%. In Europe, the MSCI Europe ex-UK Index increased by 3.5%, while the UK’s FTSE 100 posted a more modest gain of 1.3%. Japanese equities also moved higher, with the TOPIX up 2.6%. Emerging markets participated in the rally as well: the MSCI Emerging Markets Index gained 3.2%, led by Korea (up 5.9%) and Taiwan (up 4.2%).
Risk sentiment improved as global investors responded to signs of de-escalation in the Middle East. This easing of tension pushed oil prices lower, which in turn supported higher-beta assets such as equities. Strong corporate earnings and continued enthusiasm around artificial intelligence also contributed to the rally.
Importantly, this upswing has been broad-based rather than concentrated in a single region or sector. Historically, such rallies tend to be healthier and more durable. The strongest performers have included US technology stocks, small-capitalisation companies, and selected emerging markets.
April began with heightened fears of stagflation and a near-term correction in the S&P 500, triggered by conflict between the US and Iran, and what was initially described as the largest oil supply disruption on record. However, by mid-month the narrative had shifted decisively. Major equity indices reached fresh record highs, driven by renewed optimism around a potential peace deal in the Middle East and ongoing support from strong and rising corporate profits.
An eleven-day rally on Wall Street marked the fastest move to a new all-time high following a correction of at least 8.0% over the past 50 years. This has naturally prompted the key question now facing investors: is the current optimism justified, and where do markets go from here?
What happens next will depend on how geopolitical risks evolve in the coming days and weeks. For now, markets appear convinced that the confrontation in the Middle East is approaching an end. Although President Trump continues to threaten strikes on Iranian power plants and other key infrastructure if a deal is not reached, our view is that markets have probably formed a durable bottom.
That said, we are not out of the woods yet. Investors should avoid assuming that geopolitical risk has fully dissipated. The situation remains fluid, and while the likelihood of the most adverse outcomes has diminished, meaningful uncertainty persists. Further confrontation or renewed disruptions to energy supply remain possible, and the duration of any such events is difficult to predict.
V-shaped recoveries have not always proven sustainable. That said, there are notable precedents where swift rebounds were followed by extended periods of solid performance. Following President Trump’s tariff-induced correction in April last year, markets not only recovered quickly but went onto perform strongly. A similar pattern emerged after the July–October 2023 correction, which was driven by a sharp rise in long-term Treasury yields and the acceptance of a “higher for longer” interest-rate environment.
In other instances, equity markets have moved sideways after sharp rebounds as investors paused to reassess valuations. By contrast, in early 2000 and late 2007, initial rebounds ultimately marked major market peaks. In the current environment, we believe a pause or period of sideways movement is more likely – particularly until oil supplies normalise and physical shortages ease.
An additional factor to consider is the “Trump factor.” The US president has a history of surprising markets through ad-hoc statements, policy threats and social-media commentary, often catching out investors positioned on the wrong side of the trade.
The geopolitical backdrop remains highly dynamic. A further round of peace talks is reportedly being prepared in Islamabad, although at the time of writing there is no guarantee they will take place. Iranian officials have stated that Tehran will not negotiate “under the shadow of threats.” Mohammad Bagher Ghalibaf, widely expected to lead Iran’s delegation, has accused President Trump of “opening a siege and violating the ceasefire,” citing the US seizure of an Iranian-flagged cargo ship and Washington’s counter-blockade of Iranian ports.
Should de-escalation continue, we would expect markets to extend their upward trend, driven by the same themes that were in place prior to the conflict. Cyclical sectors could regain leadership from defensive areas, with small- and mid-capitalisation stocks potentially benefiting as well. Emerging market equities would also likely continue to outperform those of developed markets.
From a style perspective, we continue to favour a balanced allocation between growth and value. We see attractive opportunities in sectors such as industrials and materials, supported by signs of a manufacturing rebound. Infrastructure spending and defensive outlays may also support select companies, while consumer discretionary stocks should benefit from easing geopolitical tensions and a consumer that remains broadly resilient.
Notably, US technology stocks now appear more reasonably valued than they did in 2024 and 2025. Current market data indicates that the S&P 500 Information Technology sector is trading at a forward price-to-earnings premium of roughly 4% relative to the broader S&P 500 – the narrowest premium since 2019 and close to overall market parity.
In our view, the improving fundamental backdrop points to a sustainable market bottom, even though uncertainty is likely to persist in the near term. Recent volatility – and the resilience markets have shown – serves as a useful reminder of the importance of avoiding headline-driven investment decisions.
Middle Eastern developments have dominated short-term market behaviour, increasing correlations between equities, oil and bond yields, and amplifying both upside and downside moves with each escalation or de-escalation headline. The core lesson remains clear: panic driven by headlines is rarely a sound investment guide.
By staying disciplined, maintaining a sensible asset allocation, and remaining opportunistic when sentiment turns negative, investors are better positioned to navigate unfolding global events. Clarity, patience and consistency – when investments are aligned with a long-term financial plan – remain far more powerful than intelligence or short-term market predictions.
