May monthly investment update - Reflections on April 2026

Geopolitics, yet again, had a significant impact on global investment markets during April. Energy-driven inflation fears, and a change in central banks’ expectations could mean that costs may, once again, begin to soar for businesses and consumers - potentially weakening the global economy.

One of the key influences during the month was the ongoing Iran-US/Israel conflict which continued to affect safe passage of vessels through the Strait of Hormuz. We have mentioned before about the importance of this now highly publicised stretch of water – a key thoroughfare for around 20% of the world’s oil and liquefied natural gas (LNG).

The on/off nature of complex negotiations

April was a particularly difficult month for investment markets to decipher. They struggled with the mixed messages that were coming from Iran, Israel, Lebanon, and the US administration, on activity taking place in and around the Strait.

A fragile two weeks’ ceasefire was put in place on the 7th of April between the US and Iran, with support from the Pakistan government (stepping in as a mediator). However, on the 13th of April, in a bid to restrict Tehran’s ability to profit from oil exports during the closure of the Strait, the US administration announced it would intercept, or turn back, vessels travelling to or from Iran’s coastline. The solution was a US naval blockade in the Gulf of Oman and the Iranian Sea. Not only did this risk fresh retaliation by Iran, it also further undermined the fragility of the ceasefire.

There was, however, a glimmer of hope on the 17th of April, that things were starting to improve: Iran announced the Strait had reopened for commercial vessels (in designated safe lanes only). Global stock markets, eager for some form of resolution, quickly delighted at this news. Oil prices, on the day, fell back, dropping by around 9% (the largest daily drop since the 8th of April). However, any celebrations were short lived. Just one day later, Iran’s military declared the Strait closed again, following Tehran’s targeting of vessels over that aforementioned US blockade. It will reportedly remain closed until the US retreats.

With the deadline looming on President Trump’s two weeks’ ceasefire, he characteristically changed his mind and extended the deadline indefinitely - just days before the expiry date. It is reported that the ceasefire will now hold until the President receives a unified proposal from Iran which should include the country dialling back, to some degree, on its nuclear capability.

Investors prepare for tougher times ahead

We have talked before about how investors have the ability to desensitise, over time, to ongoing geopolitical events. We saw this happen in 2025, when President Trump announced his reciprocal trade tariffs. At that time, the news caused both equity and bond markets to plummet. That is, until the President pressed 'pause' for 90 days. The point being, as the year progressed, tariff news became less of an issue back then. Global equities (at least) continued their meteoric rise, finishing 2025 on a high, right across the board.

In 2026, we are now seeing that hardened resilience coming to the fore, yet again. This time, however, the current geopolitical environment brings heightened levels of uncertainty, and risk, for investors, with the military action in the Middle East, and the continuing war in Ukraine (now in its fifth year).

'Tariff turmoil' in hindsight, seems a rather tame issue for investment markets to navigate through. Now, they have the very real prospect of 'war-related inflation' – inflationary pressures caused by worsening armed conflict. The danger for markets of course, is that this scenario could, again, lead to 'stagflation', where higher inflation may begin to slow economies down, and bring recession concerns back to the table for world leaders. In recent months, investors have been 'arming' themselves against this, by pushing up the share prices of defence companies, and global energy firms who benefit from selling oil at higher prices.

Global equities weather the storm

Despite the continuing uncertainty that temporary ceasefires, and further on/off diplomatic talks between the US and Iran bring, global equities continued to demonstrate resilience during April (as alluded to here).

US equities, for example, were already contending with rises in interest rates and raised oil prices -which could have affected performance. In April, however, they made a strong rebound driven mainly by AI-linked mega-cap tech stocks and their continued run of strong earnings.

Closer to home, UK equities, although volatile, appeared broadly resilient following the losses seen in March (albeit they lagged US markets). Major UK indices ended April modestly positive (month to date) and were ahead, year to date, by around 5% - driven by both defensive, and heavy energy, stocks.

European equities, by contrast, have underperformed year to date, possibly a sign of greater sensitivity to elevated energy costs and weaker growth - potentially caused by the region’s overall proximity to the conflict in the Middle East.

Bonds yields rise amidst interest rates uncertainty

During the month, global bond markets (most notably in the UK and US) posted negative returns as expectations continue to grow over rising inflation, and those higher oil prices (due to the Middle East crisis). The volatility in long-term interest rates signalled that bonds (traditionally know as a 'safer haven' during turbulent times) are currently not providing as much of a 'comfort blanket' to investors as they would normally do.

UK government bond yields, for example, rose in April, driven by rising inflation expectations. If we think of those higher oil prices we mentioned earlier, they are continuing to have a knock-on effect for consumers at the pumps. But also, it’s a concern for businesses in relation to the cost of transporting goods; for farmers in relation to food production (fertiliser costs); and for supermarkets’ operational costs – all of which we may start to see being passed onto consumers through everyday products.

Sadly, the optimism around interest rate cuts previously expected by central banks in 2026 (prior to the Middle East conflict) have now become far less of a reality: At the end of April, the UK’s Bank of England Monetary Policy Committee voted to keep rates unchanged, for now. This was a sentiment replicated by the European Central Bank during the month (who also hinted at a rate rise in June). The US’s Federal Reserve also kept rates steady in April (where members were divided over whether rate cuts were even in the pipeline). All three banks cited rising inflation as a concern in keeping rates on hold.

Unless there is a solution, soon, where both the US and Iran can fundamentally agree a peaceful way forward - one which will once again, allow free passage of goods through the Strait of Hormuz - the world will continue to be gripped by uncertainty. In the meantime, stock markets remain resilient (with many near, or sitting, at all-time highs – especially the US). However, given the current, highly uncertain outlook, it remains to be seen whether those ‘desensitised’ markets, could, prove to be a little too complacent. Only time will tell.