As I’m sure you know today is the 81st anniversary of VE Day and the 100th birthday of Sir David Attenborough. Both monumental occasions in their own right and to be celebrated in different ways, but worthy of note. Today might also be a turning point in British politics. Time will tell.
In the world of finance there were two other significant markers today as both the S&P 500 and Nasdaq indices reached new all-time highs as well as their highest ever closing values. The figures are quite frankly, that word that is far too often used, but in this case feels appropriate, unprecedented. It was just over a year ago I was writing about the Nasdaq having gone through 20,000 points. Today it ended above 26,000. It’s up almost 4.5% on the week alone. AI is definitely back on the agenda, and there are some very good company result figures coming through to [Ed – hopefully!] back up this euphoria.
It’s not all good news though as Holly Mackay from BoringMoney points out; “This week, the US announced that its debt (a cool $31 trillion since you ask) was higher than its GDP. This has not happened since the Second World War. Put into plain English, this is like a household which borrows more than its annual income. You can get away with it for a bit, but if interest rates are high, you spend more of your income on servicing the debt every month and, at some point, it bites. The risk is a change to the US credit rating, which then makes borrowing more expensive for both households and businesses.”
Market Thoughts
We start this week with another ad-hoc update from Louis Coke, Director of Private Clients at Charles Stanley.
Events remain very fluid in nature and, in our view, increasingly difficult to interpret with any conviction. Recent diplomatic signals have done little to improve clarity. The latest one-page proposal put forward to Iran from Washington appears to reinforce existing, entrenched positions, rather than signal progress. There is little evidence that either side is willing to compromise meaningfully, suggesting negotiations remain at an impasse.
At the same time, operational conditions in the region have deteriorated. Iran now appears to exert effective maritime control over the Strait of Hormuz, with reports indicating that commercial vessels are no longer transiting the choke point. This represents a critical escalation, given the strategic importance of the Strait to global energy flows. It remains unclear whether shipping companies will be willing to resume passage under conditions that may involve Iranian tolls or guarantees, and uncertainty on this front is contributing to heightened volatility in energy markets.
Adding to the complexity, there has been a notable shift in US policy. Donald Trump’s apparent reversal of earlier plans to actively assist the safe passage of vessels through the Strait underscores the lack of a consistent strategy. This policy ambiguity is feeding into broader uncertainty about how the situation may evolve in the coming weeks.
Domestically, President Trump faces a challenging backdrop. Rising petrol and diesel prices are becoming an increasingly sensitive issue as the mid-term elections approach. Energy costs are already feeding through to consumer sentiment, and sustained price increases could have material political consequences. This places additional pressure on the administration to stabilise the situation, while at the same time limiting the range of policy options available.
Looking ahead, President Trump’s visit to China next week is likely to be a key focal point. He will need to present credible plans or at least a coherent framework for managing the current crisis when he meets President Xi Jinping. Notably, Iran has already taken a proactive diplomatic stance, with its foreign minister visiting both China and Russia to press its case. This suggests that geopolitical alignment and influence in the region are actively being contested, further complicating the landscape. Israel also remains a wildcard in the situation and clearly has aims that are different to those of Washington.
Against this backdrop, financial markets have behaved in a somewhat counterintuitive manner. US equities have rallied to trade at or near all-time highs despite what is, in effect, a severe energy shock. The primary driver of this resilience has been the technology sector, where recent quarterly results have strengthened confidence in earnings expectations. As a result, the market increasingly reflects what can be described as a two-speed economy – strong earnings momentum in technology contrasted with a more fragile outlook across energy-sensitive and industrial sectors.
In our view, this divergence adds another layer of risk. While technology companies remain relatively insulated from immediate energy price pressures, broader economic conditions could deteriorate if elevated energy costs persist. The sustainability of current market valuations will therefore depend on whether strength in the technology sector can continue to offset weakness elsewhere.
Ultimately, the outcome in the Middle East remains highly uncertain and difficult to predict. The range of possible outcomes is wide, and the situation could evolve rapidly in response to political or military developments. In this environment, we continue to emphasise the importance of maintaining diversified portfolios and a long-term investment horizon, but we incorporate a cautious slant to the short-term dynamic.
Historically, periods of geopolitical stress have reinforced the value of diversification rather than rewarded attempts to time markets or react to events as they happen. We continue to believe we are in the second of our three scenarios in the table below, even in light of the rally in investment markets.
| Scenario | Oil Price | Likelihood |
|---|---|---|
| Ceasefire / De-escalation: A ceasefire (or durable stand‑down) keeps the Strait of Hormuz open with no material disruption to oil or LNG flows. Markets remain sensitive to headlines, military movements, and political statements, but there is no sustained interruption to shipments. Energy prices continue to reflect a degree of geopolitical risk, though not one associated with a physical supply shock. | <$80 | 30% |
| Protracted escalation: The Strait of Hormuz remains open for limited transit, but repeated interference disrupts shipping for several weeks, reducing traffic and raising costs. This results in a modest supply loss that can be largely offset through storage drawdowns and alternative transport channels. | $80-$100 | 50% |
| Strait of Hormuz closure and escalation: Iran effectively halts transit through the Strait for a meaningful period, forcing large-scale rerouting and an acute energy supply shock. The shock is compounded by direct strikes on energy infrastructure. Inventories are depleted, policy responses intensify, and prices re-rate to reflect a true supply shock. | >$100 | 20% |
Lothar Mentel and team at Tatton Investment Management cover the following areas in the latest Tatton Weekly:
- Reasons to believe – The looming US-China summit next week is giving markets reasons to price in final negotiations to reopen the Strait of Hormuz; and Trump and Xi may also surprise Europe on trade.
- April asset returns review – The conflict with Iran became less “kinetic”. The fuzzy ceasefire kept risks elevated but global equity markets rallied strongly after the March sell-off. In a reversal of trend, the US and its mega-cap tech firms are once again leading the charge.
- How open is too open for AI? – China and the US have different models for developing the world-changing AI software, one open and one closed. The stark differences in the company-level economic results that this brings may determine the speed of progress.
In the latest Monthly Digest from Rathbones, Head of Market Analysis John Wyn-Evans, explores how markets are operating in a world of heightened and persistent uncertainty. But this shouldn’t deter sensible, long-term investors from staying invested. We continue to monitor the risks and ensure our portfolios can weather market volatility.
- The new era of uncertainty shouldn’t scare us out of sensible long-term investing.
- The price of oil will have an extra risk premium added to it, even after the Iran war ends.
- Corporate earnings look set for a great year.
And to complete my set of bullet points this week [Ed – I think you’ve spoken too soon. I’ve seen the rest of the bulletin!!] Guy Foster, Chief Strategist at RBC Brewin Dolphin, discusses what’s driving market resilience as the war between the U.S. and Iran continues in the latest Markets in A Minute.
Key highlights
- New peace proposal? The U.S. began escorting vessels through the Strait of Hormuz over the weekend, leading to news of a potential peace plan with Iran.
- Interest rates held: Major central banks held interest rates, though they’re expected to start rising in June.
- Mixed stock market results: European indices fell around 1% on Thursday while the U.S. bucked the trend – driven by generally good earnings numbers last Wednesday.
The Great Debate?
Excel was supposed to kill accounting jobs, says Mitchell Wright, Portfolio Manager at Cazenove Capital…instead, it created more of them.
That’s the Jevons paradox: Cheaper + faster technology expanding demand, rather than destroying it.
In this case, Excel made accounting:
- 1️⃣ Faster
- 2️⃣ Cheaper
- 3️⃣ More accessible
…and that resulted in…
- More businesses using it
- More analysis
- More jobs
So here’s the real AI question in his opinion: Does AI replace work … (Global Intelligence 2028).
…or does it create entirely new industries
…and demand we can’t yet see?
Fertiliser Fears
Plants need regular feeding, plenty of water, and a bit of luck with the weather. With gardening (unlike investing),timing is everything. Plant too early and there’s frost. Plant too late and there’s not enough sun to grow. Miss the slot, and it’s game over, says Ben Kumar at 7IM.
That’s a pretty helpful way of thinking about the Strait of Hormuz and supply chains …
Now, crude oil doesn’t have an expiration date (it sat underground for millions of years, after all). So, if/when the Strait of Hormuz reopens, the oil market can get back to normal.
But for other products, there’s a use-by-date. Jet fuel, for example, you can only store for about a year (hence the flight cancellations we keep hearing about).
The bigger problem will come at harvest time. Because the Strait is also a key chokepoint for chemicals:
Source: US EIA/Q1 2025
For those who’ve forgotten their chemistry class (or missed our email on the Haber-Bosch process last summer), these four ingredients are vital for fertiliser. Without them, crop yields plummet.
We don’t need to imagine how it plays out; in Sri Lanka in 2021, there was a ban on chemical fertiliser. Crop yields fell by around 25%**. And fertiliser DOES have a use-by date. In the Northern hemisphere, crops need to be planted and fertilised by June. If you miss your slot, there’s no playing catch-up later.
Countries with large populations and poor soil quality are most at risk of seeing prices rise. A lot of Asia falls into that category. India for example, where the stock market fell 10% following the Iran conflict, and the Indian Rupee has lost 18% of its value vs. the US Dollar.
Remember, these things work with a lag. Fertiliser prices up today, crop prices up in autumn, food prices up come 2027. Longer-term, more sources of ammonia are coming online (in the Caribbean, in the US and China), but not likely to be quick enough for this planting season. Even if everything is solved overnight, Hormuz-related impacts could still be with us into 2027 …
It’s all about the Maths
Josh Jampedro, Tampa Area Mortgage Planner, on LinkedIn is my kind of guy. His latest posting
EVENTUALLY, interest rates will fall again. Right now, mortgage rates are essentially tied to the price of oil but that is a conversation for another day.
When they do, most clients will refinance to save cashflow. But if they’re working with actively managed assets, a better move is to reinvest the savings instead of pocketing the cash. This client is 2 years into a 30-year mortgage. Refinancing to a rate just 0.75% lower saves $111K in interest.
If they invest that $390/month at 7%, they gain another $282K. Total net worth increase: $393,000 over the life of the loan.
Same house. Same budget. Strategic thinking. Refinances aren’t always just about lowering payments; they’re about building wealth.
Apparently, it works in pounds sterling and, albeit to a lesser extent, over typical UK mortgage periods, too!
| Current Loan | 28 Year Refi | |
|---|---|---|
| Rate | 6.625% | 5.875% |
| Loan Amount | $800,000 | $800,000 |
| Principal & Interest | $5,250 | $4,858 |
| Interest Remaining | $943,500 | $832,300 |
| Interest Saved | $0 | $111,200 |
| Investment Gains | $0 | $281,800 |
| Net Worth Change | $0 | $393,000 |
Miscellaneous
If you are a regular reader of the bulletin [Ed – you deserve a medal if you are!!] you’ll know that I occasionally [Ed – !!] go off on a bit of a tangent if I find something that I think is interesting. This week I’ve found, not for the first time, an article from Dr Eliza Filby, a Sunday Times bestselling author and historian of generational change – and what it means for how we work, earn and live. I have reproduced it in full and hope she doesn’t mind. It won’t be for everyone, as it looks at how young Britons are managing financially beyond their wage? If you employ younger individuals or have children/grandchildren, then it might be interesting to you too!
I’m off with one of those children of mine to club day at the Rugby club. It’s where the parents get roped in to training and games, so I really do hope I’m able to catch up with you next time.