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- The US said it was indefinitely extending its ceasefire with Iran on Tuesday.
- Investors priced in a lower probability of sustained disruption to energy supplies.
- A continuation of the conflict could increase stagflation risk.
Equity markets moved higher and bond yields stabilised following a reprieve in the Middle East conflict, amid easing inflation concerns and resilient economic data.
The US extended its ceasefire with Iran on Tuesday “until such time as [the Iranian] proposal is submitted and discussions are concluded1.” The conflict has fuelled episodic spikes in volatility since February.
Equity markets rose following the announcement. In the US, the tech-heavy Nasdaq Composite climbed 1.6% to close at a new all-time high on Wednesday. The S&P500 also marked a new height after rising 1%. The MSCI World Index was up 0.6%2.
Risk appetite improved as investors priced a lower probability of sustained disruption to energy supply
“Equity gains were broad based across regions and market caps. Developed markets outperformed over the week, supported by strength in US equities, while Emerging Markets continued to lead on a month to date basis,” says Charlotte Daughtrey, Investment Director for Equities at Federated Hermes. “Small cap stocks outperformed both over the week and month to date, reflecting improving confidence in the domestic growth outlook as recession concerns receded.”
“Risk appetite improved as investors priced a lower probability of sustained disruption to energy supply, contributing to softer oil prices and a moderation in near term inflation fears. This shift allowed markets to refocus on fundamentals rather than tail risks.”
The volatility index (VIX) dropped 2.5% in the wake of the announcement from the White House3, reflecting the change in risk sentiment.
Daughtrey notes that recent inflation data provided modest reassurance that disinflationary trends remain intact. “UK inflation printed broadly in line with expectations, while US producer price data suggested higher energy costs have not yet translated into broader pricing pressures. Bond yields stabilised as markets continued to price a delayed – but intact – easing path, rather than a renewed tightening cycle,” she says.
The fixed income view
The UK rate of inflation rose to 3.3% in the year to March, driven by higher fuel costs4. Mitch Reznick, Group Head of Fixed Income – London at Federated Hermes Limited says the latest figure came as some relief to markets which have been eyeing soaring gilt yields. The liquid 10‑year gilt yield moved more than 75 basis points, roughly 18%, within the first two weeks of the conflict.
“After six weeks of rates volatility, the print disappointed those positioned for further fireworks, landing exactly in line with expectations at 3.3%,” says Reznick. “Yes, ‘petrol-led’ inflation has come in higher following the disinflationary trend in place since last summer – but that rise in UK CPI versus February means less to the market than the forward‑looking headlines scrolling across trading screens. For now, those headlines indicate that, as fragile as it may be, the ceasefire has been extended indefinitely.”
However, while geopolitical events generally represent a short-term impact on equity markets, there is the risk of a protracted conflict sparking stagflation, says Peter Smith, International Equity Strategist at Federated Hermes.
“If the war drags on too long, and global oil markets remain frozen, a supply shock can turn into a demand shock,” says Smith. “A demand shock can trigger global stagflation, something that we all want to avoid. Fortunately, this may serve as part of the basis for a negotiated end to this conflict. My hunch, then, is that the war in Iran will end before a demand shock and stagflation set in.”
1 Iran Update Special Report, April 21, 2026 | ISW
2 Source: Bloomberg
3 Source: Bloomberg
4 CPI ANNUAL RATE 00: ALL ITEMS 2015=100 – Office for National Statistics
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Previous Market Snapshot
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