Stock markets are continuing to price in peace, with the S&P 500 clawing back all of its losses since the war began on 28 February after yesterday’s session, when it rallied a further 1 per cent. European stock markets are following suit and started brightly this morning, although they still have some way to go to match that S&P record.
The FTSE 100 is up 0.3 per cent this morning, with quality checking company Intertek rising by double digits on plans to split in two, alongside good gains for miners, which is overpowering losses for tobacco stocks following a trading update from Imperial Brands, and oil majors. This leaves London’s blue chips fewer than 300 points shy of its pre-war level, so there’s not a huge amount in it, but it would probably take a solidified peace deal to tip things over the edge. BP has said it’s doing well and expects “exceptional” results from its oil trading in Q1 2026 after a weak performance in the prior quarter, sparked by the surge in crude prices due to the Iran war. More on those company updates here
Shares in Frankfurt and Paris are up 1 per cent and 0.5 per cent, respectively, but all of this is amid fraught negotiations between the US and Iran, a blockade upon blockade, and a fragile ceasefire. Brent crude is back below $98, and the risk-on sentiment has fuelled dollar shorts and helped push cable to $1.35 this morning, its best level since before the war started. The fact that UK gilt yields have materially declined since the March peak is being seen as a positive, too.
In New York, software stocks and semiconductor companies led the gains as Intel rose for a ninth straight session, and is having its best year since 1987. Financials also rallied even as Goldman Sachs fell despite its bumper earnings card. The Nasdaq Composite rose 1.2 per cent and is now also above its pre-war closing level, but the Dow Jones has a little further to go to catch up. Why the resilience? Basically, it’s a PE story. A forward PE for the broad market of around 20 is not excessive. On the one side of this is the fact that interest rates haven’t spiked. While we saw yields rise through the month of March in the US, like with Britain, they’ve since cooled, and we have not seen any aggressive moves leading to dislocations. After rising from around 3.95 per cent to above 4.4 per cent from 28 Feb to the end of March, the US 10-year yield has since pulled back to around 4.25 per cent today.
The other is earnings – analysts expect earnings per share (EPS) growth of 19.3 per cent this year. This seems a very high bar to clear. As we enter earnings season, this assumption will be put to the test. Another factor is the strength of tracker fund flows and investors being conditioned to buy the dip, which remains a powerful ballast to the market in times of stress. The rally in software stocks underlined another factor at work – AI. The investments are not drying up and while software stocks have taken a beating this year there are plenty of arguments to suggest they’re oversold and could help lead the market on again as part of the usual cycle of rotation. Oil prices have also pulled back from their highs and not spiked back to $120, but are you telling me there is no price discovery from the war at all?
US President Donald Trump said Iran wants to do a deal, and Iran said it’s open to talks within the framework of “international law”. The process of building a framework for talks to work is slowly taking shape. It could take some time but I think both sides are incentivised and pressured to do a deal, despite what stock markets think. The blockade has begun and the ceasefire is holding, so I guess traders are looking at no further escalation as a win.
Wall Street banks are seemingly doing OK. Goldman Sachs’ earnings beat with its best quarter in five years, led by equities trading, where revenues rose 27 per cent year-on-year. Bond traders suffered with the fixed income, currencies and commodities business posting a 10 per cent decline in revenues. Overall profits rose 19 per cent from the year ago. Today we have JPMorgan, BlackRock, Wells Fargo, Citigroup and Johnson & Johnson.
The rest of the S&P is doing less OK. The real economic impact of the war was underlined yesterday as Opec production slumped 27 per cent in March compared with February, down 7.89mn barrels per day to 20.79mn bpd with the steepest declines unsurprisingly in Saudi Arabia, Iraq, Kuwait and the United Arab Emirates, which usually make up around 70 per cent of output. China’s exports in March came up short of forecasts, with shipments rising 2.5 per cent versus 8.3 per cent expected.
By Neil Wilson, investor strategist at Saxo UK