Weekly market commentary

Market review

At the start of the week, investors were increasingly prepared to look beyond geopolitical risks and refocus on earnings growth and the powerful influence of AI. However as the week progressed, concern over the war in Iran continued, with most markets outside of the US posting losses for the week. The war remains unresolved, with a naval blockade still restricting oil flows through the Strait of Hormuz. Investors appear to have some optimism that the conflict will be contained, reflected in equity markets reaching new highs at the beginning of the week. However, the continued uncertainty and fluctuating oil price is causing further volatility and regional dispersion.

Artificial intelligence continues to underpin equity market leadership. AI stocks have driven gains in the S&P 500 and Nasdaq, with investors responding positively to earnings results where there is clear evidence that AI investment is translating into earnings growth. This theme remains central to market confidence, particularly in the US. At the S&P 500 level, earnings season has begun well. Around 25% of companies have reported so far, with the majority beating expectations and overall earnings growth tracking at double digit levels year on year. This has reinforced the view that corporate fundamentals remain resilient despite higher energy and financing costs, but investors note that the war only overlapped with a third of the reporting period. Tesla’s results were mixed but broadly positive, with profits and margins beating expectations, although the shares gave back early gains as management flagged even higher investment spending. Meta and Microsoft are planning job cuts or buyouts in an effort to offset heavy spending, while Intel shares surged after its sales forecast topped expectations.

In the UK, inflation rose to 3.3% in March, driven largely by higher fuel prices linked to the Middle East conflict. Gilt yields edged higher initially, while sterling remained broadly stable as markets judged the data unlikely to force immediate action from the Bank of England. US markets were also shaped by comments from Fed chair nominee Kevin Warsh. His emphasis on central bank independence and a tougher stance on inflation weighed briefly on equities, though the broader market impact proved short lived.

Outlook

Markets are currently beholden to news flow on the war in the Middle East, with rapidly changing rhetoric stoking volatility. Investors are weighing the implications of the conflict and its duration on macroeconomic factors and assessing what the policy responses may be from governments and central banks in tackling inflationary pressures from energy shortages and fears of slowing growth. Fiscal dynamics, liquidity conditions and shifting policy expectations are likely to reinforce cross asset and regional dispersion in the months ahead. Earnings remain solid and despite overall volatility, regional equity markets remain resilient with limited signs of recession presented in data.

Movers table