Weekly Market Update: 8th May
08/05/2026
Lucy Smith discusses the potential US-Iran peace deal, the impact of S&P 500 earnings on markets, and the UK local elections.
Lucy Smith
Senior Investment Manager
Transcript
Good morning and welcome to the Killik & Co market update
This week, markets have been driven by developments surrounding a potential peace agreement between the US and Iran. Reports suggest a 14-point memorandum of understanding could pave the way to ending the conflict, alongside a 30-day negotiation period. However, optimism was tempered yesterday as both countries exchanged strikes in the Strait of Hormuz, placing renewed pressure on the proposed deal.
Looking at the price of Brent crude oil year-to-date, prices fell sharply on news of a potential agreement, reflecting expectations that supply routes through the Strait of Hormuz could reopen. Oil declined by around 7.5% over the week to Thursday, briefly dipping below $100 per barrel. However, prices have since rebounded above that level amid renewed escalation.
Unsurprisingly, this weighed on oil majors such as BP and Shell, both of which recently reported strong earnings. This chart compares the year-to-date performance of BP, Shell, easyJet, and Ryanair. A clear divergence has emerged over the course of the conflict, with oil stocks benefiting from higher prices while airlines have lagged due to elevated fuel costs. More recently, however, we are beginning to see some convergence, suggesting investors are anticipating lower oil prices and a stronger consumer backdrop, which could support travel demand.
Turning to volatility, the VIX index, often referred to as the “fear index”, has fallen to just above 17, close to its lowest level since the conflict began. For context, the index peaked at around 31 in late March. Typically, readings above 20 indicate heightened market uncertainty, so a move back below that threshold should provide some reassurance to investors.
Earnings season has continued across the week with a large number of companies reporting, and has remained a key support for markets.
Around two-thirds of S&P 500 companies have now reported, with 84% beating expectations on earnings per share and 81% have reported a positive surprise on revenue growth. Earnings per share is a popular metric used to measure a company’s profitability per every share of stock. Both the percentage of S&P companies reporting positive earnings surprises and the magnitude of the surprises have been above recent average.
This strength has helped drive equity markets higher. The MSCI World Index, S&P 500, and NASDAQ have all rallied significantly from their March lows, with each reaching new record highs this week. Over the past month, the S&P 500 is up 10.9%, with April marking its strongest monthly gain since November 2020 when the Covid vaccine was discovered. It is estimated that around 50% of the index returns in the recent rally are accounted for by 5 stocks - Alphabet, Amazon, Apple, Broadcom & Nvidia). The NASDAQ has risen 10.8%, while the MSCI World Index is up 9.8%. This represents a sharp rebound, supported by strong earnings and improving sentiment, despite ongoing geopolitical tensions.
Looking at corporate commentary, this chart highlights the most frequently cited terms in Q1 2026 S&P 500 earnings calls. Mentions of the “Middle East” have surged to 50%, up from just 13% in Q4 2025. References to “AI” have remained steady at around 65%, while mentions of “uncertainty” have also risen, from 35% to 50%, reflecting the broader macro backdrop.
In the UK, local elections took place on Thursday, with early results pointing to significant losses for the Labour Party, largely in line with expectations.
This chart shows the year-to-date performance of the FTSE 100 and FTSE 250. The FTSE 100, which is more globally focused, and the more domestically oriented FTSE 250 have both shown relatively muted reactions. This is partly due to support from stronger global earnings and improving geopolitical sentiment, as well as the fact that weaker Labour performance was anticipated and therefore a potential change in leadership had been largely priced in.
This chart shows the UK 10-year gilt yield over the last year. The gilt yields have risen above 5% in recent weeks, reaching their highest level since the 2008 financial crisis. This move has been driven by persistent inflation concerns and increased political uncertainty. Higher yields raise government borrowing costs and could put pressure on fiscal policy, potentially forcing Chancellor Rachel Reeves to reconsider her self-imposed borrowing constraints.
This chart shows favourability ratings as of April 2026 according to YouGov. You can see that Ed Davey of the Liberal Democrats is currently has the highest ratings of the major party leaders when looking at the combination of very favourable in the dark purple and somewhat favourable in the light purple. Whereas Keir Starmer ranks lowest of the major party leaders. If we look to the bottom of the chart at the other senior politicians, Andy Burnham is top, followed by Angela Rayner, and Wes Streeting. All are widely viewed as potential future leadership contenders within the Labour Party.
Looking forward to the week ahead we have earning from Constellation Energy on Monday, Siemens and E.ON Wednesday, and National Grid and Applied Materials on Thursday.
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