Market Snapshot is a weekly view from our portfolio managers, offering sharp, thematic insights into the trends shaping markets right now.
Fast reading
- Fighting paused but violations risk reigniting conflict.
- Markets turn muted following earlier gains.
- Our investment experts warn longer‑term economic fallout could last years.
The US and Iran agreed to a two-week ceasefire plan on Wednesday, amid increasingly inflammatory threats from US President Donald Trump.
Iran has granted safe passage through the Strait of Hormuz – a vital energy chokepoint – to a limited number of tankers under the agreement. But tensions remain high, and further talks in Pakistan between the two sides are scheduled.
The ceasefire announcement was welcomed by markets, with equities rebounding on Wednesday. The blue-chip S&P 500 index surged almost 3% on the news, Europe’s STOXX 600 3.7% and Asia’s Nikkei and KOSPI indices 5.4% and 6.8% respectively¹.
Oil prices, meanwhile, remain high, amid mounting concerns about the stability of the ceasefire agreement. Brent crude is trading at around US$97 a barrel at the time of writing, while Forties Blend, a benchmark which tracks oil produced off the UK coast, has reached a record high (£109.50) as European and Asian refineries scramble to secure supplies.2
President Trump’s erratic statements have dominated market sentiment, further fuelling uncertainty and pushing up the risk premium
Volatility now the norm
The last year has seen a sharp rise in volatility – following the scattergun implementation of tariffs and ongoing uncertainty – and, as risk models have adjusted, markets appear better conditioned to absorb geopolitical stresses, argues Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes.
“Investors have become more cautious about the potential for sustained positive momentum and President Trump’s erratic statements have dominated market sentiment, further fuelling uncertainty and pushing up the risk premium,” says Dudley.
“The market volatility also needs to be framed in the context of valuations,” she adds. “We have seen compression in the market multiples, which creates opportunities for long-term investors willing to look through the noise.”
Figure 1: Have markets become more comfortable with uncertainty?
Broader implications
While the two‑week ceasefire has helped to tentatively reassure markets, the longer‑term economic fallout could still last years, warns Kunjal Gala, Global Head of Emerging Markets at Federated Hermes.
“We expect the conflict will prompt many governments to re‑assess their energy security, with the uptake of alternative energy sources – such as nuclear and renewables – likely to accelerate as countries seek to reduce exposure to hydrocarbon flows in the event of future conflicts,” he says.
“Many Asian countries have borne the brunt of the fallout with about 80% of the oil and gas passing through the Strait of Hormuz going to Asia. This exposure has sent shockwaves across many countries that have limited energy inventory, particularly gas.”
Gala adds: “In our opinion, the main implications of the conflict include a shake‑up of the geopolitical status quo in the Middle East, changes in global energy security priorities, and a further weakening of industrial competitiveness in regions more exposed to energy shocks.”
View the latest Market Snapshot.
BD017518
Share:
