Markets were driven by fast‑moving headlines this week, swinging between rising tensions and hopes of a lasting resolution in Iran. But strong company earnings kept equities near record highs despite the volatility.
Read this article to understand:
- How oil prices reacted to the ever-evolving situation in the Middle East
- Their impact on inflation expectations, equities and bonds
- How strong company earnings continued supporting equities
The week began with a sharp rise in geopolitical tensions, as renewed skirmishes in the Middle East, the first since the April 8 ceasefire, rattled markets. Fresh attacks near the Strait of Hormuz, alongside the US-led “Project Freedom” initiative aimed at escorting vessels through the region, raised concerns that fragile stability could unravel.
The impact was immediate. Oil surged, with Brent crude jumping by nearly six per cent at one point, to above $114 per barrel, reigniting fears about supply disruption and higher inflation. Bond yields climbed in tandem, with US ten-year Treasury yields reaching a nine-month high of 4.44 per cent, while equities retreated from their recent record levels.
Yet what followed over the next few days was a reminder of just how quickly sentiment can shift. By Tuesday, April 5, markets began to steady as signals emerged that the ceasefire was still holding despite the flare-up. Oil prices eased back towards $108, helping to take some of the heat out of inflation expectations.
At the same time, economic data from the US remained resilient. Services activity held steady and labour-market indicators showed continued strength.
The combination of falling oil prices and solid growth data reassured investors that the broader economic impact of the conflict might remain contained, allowing equities to recover and push to fresh highs.
Midweek saw the most powerful rally, driven by growing optimism that a more lasting resolution could be within reach. Reports that the US and Iran were close to agreeing a framework deal triggered a sharp reversal in energy markets. Brent crude fell by more than seven per cent in a single session, dropping to around $101, its biggest daily decline in months.
This collapse in oil prices eased fears of a prolonged inflation shock, prompting a strong rally in bonds and equities alike. US ten-year yields fell to 4.35 per cent, while the S&P 500 rose by 1.46 per cent to a new record high.
What stood out most was the leadership of technology stocks. Chipmakers, in particular, continued their remarkable run, with the semiconductor index rising strongly and extending its gains by over 60 per cent year to date. Strong earnings from companies such as AMD added fuel to the rally, highlighting that the artificial intelligence theme remains one of the dominant forces underpinning markets, largely independently of the shifting geopolitical backdrop.
However, the final leg of the week served as a timely reminder that the situation remains finely balanced. Fresh reports of US strikes on Iranian targets and renewed tension around the Strait of Hormuz unsettled markets once more.
Oil prices edged higher again, towards $101, while equities slipped back, with the S&P 500 down slightly from its peak. At the same time, inflation concerns resurfaced following stronger-than-expected data, including a rise in US inflation expectations to 3.64 per cent, the highest in over two years. This pushed bond yields higher again and reignited the debate about how long interest rates may need to remain high.
In simple terms, markets are currently behaving like a coiled spring, capable of moving sharply in either direction depending on the next piece of news. If tensions ease and oil stabilises, there is room for further gains. But if disruption to energy supply intensifies, the risk of renewed volatility remains firmly in play. Despite this, equity markets have shown notable resilience so far, with major indices still near record highs and global equities, as measured by the MSCI ACWI, up by over nine per cent so far in 2026 in local terms.1
Past performance is not a reliable indicator of future results.
References
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of May 8, 2026.
