Capital markets appear to be walking a tightrope: while the global economy continues to show remarkable resilience, headwinds—especially those stemming from oil prices—are becoming increasingly evident. The central issue remains the conflict between the U.S. and Iran and their fragile truce. After Donald Trump described Iran’s response to the latest U.S. peace proposal as unacceptable, the week begins with some risk aversion, reversing part of the gains seen last week. Now that most of the corporate earnings season has concluded, investors’ attention will focus more heavily on the Strait of Hormuz and whether traffic through this strategic chokepoint improves.
In the opinion of Stefan Rondorf, Senior Investment Strategist, Global Economics & Strategy at AllianzGI, “markets have learned to live with geopolitical tensions, but that does not mean these risks have disappeared. Quite the opposite: recent developments show that the ceasefire remains extremely fragile and there is barely any end to the crisis in sight.”
This risk contrasts with market behavior, which closes the period on a constructive note. “Investor optimism resurfaced amid the possibility that Washington and Tehran could reach an agreement that would allow the Strait of Hormuz to reopen and introduce a moratorium on uranium enrichment. As a result, tensions in equity markets gradually eased. Oil prices fell sharply, moving back below $100, and expectations for a lasting resolution to the conflict in the Middle East increased,” highlight analysts at Edmond de Rothschild AM.
For Manuel Pinto, Head of Research at XTB, after months of talking about the famous TACO Trade—the idea that Trump always ends up backing down when economic tensions begin affecting markets—Wall Street is beginning to adopt a new concept: the NACHO Trade. “The term refers to Not A Chance Hormuz Opens, meaning the growing sense in the market that the Strait of Hormuz could remain partially blocked for longer than expected. And that has enormous implications for inflation, oil, central banks, and bonds. The big difference is that while stock markets continue reaching all-time highs thanks to the momentum from artificial intelligence and corporate earnings, the bond market is already beginning to price in a much more uncomfortable scenario: persistently high oil prices, more stubborn inflation, and elevated interest rates for longer. That is why the NACHO Trade is causing very aggressive movements in the U.S. yield curve. Long-term bond yields continue rising while the market reduces expectations for rate cuts in 2026. In other words, Wall Street is beginning to assume that the Federal Reserve could take much longer to ease monetary policy if the energy shock continues putting pressure on inflation,” he explains.
Sell in May?
In this context, investors are once again hearing the stock market saying “Sell in May and go away, and come back on St. Leger’s Day,” according to which investors consider selling their holdings in May to avoid lower returns during the summer and autumn months, returning in November.
However, global equity markets have staged a strong recovery in recent weeks, overcoming prevailing uncertainty with surprising agility. After falling for five consecutive weeks through the end of March, the S&P 500 is on track to achieve its sixth consecutive week of gains, while both the Nasdaq and the S&P 500 remain near all-time highs.
According to Mark Haefele, CIO of UBS Global Wealth Management, recent gains have been driven by hopes for a more convincing de-escalation in the Strait of Hormuz, adding to favorable factors such as strong corporate earnings, resilient fundamentals, the Fed’s inclination to maintain flexible monetary policy, and enthusiasm related to AI.
“With a less negative geopolitical backdrop for markets, we believe they can once again focus on the fundamentals that truly support the rally in global equities. We maintain an attractive view on U.S. equities and expect the S&P 500 to rise toward year-end, supported by healthy earnings growth and a monetary environment that remains favorable. Within U.S. equities, we continue to favor the consumer discretionary, financial, healthcare, industrial, and utilities sectors, while maintaining a constructive stance on areas of the market linked to AI,” says Haefele.
Investment Ideas
Jessica Henry, Head of Equity Investments at Federated Hermes Limited, for example, sees opportunities in emerging markets, where favorable demographics, rising incomes, and exposure to attractive end markets continue supporting long-term growth. “Despite these favorable structural tailwinds, valuations remain attractive compared with developed markets, representing an appealing risk-reward opportunity. We also see value in capital-intensive businesses and commodity-sensitive stocks, which benefit from a favorable environment of higher commodity prices driven by geopolitical conflicts, supply constraints, and long-term structural shifts in demand,” adds Henry.
Finally, analysts at Neuberger believe that global growth and equity markets will remain resilient. “Although we remain constructive on small-cap companies, we believe the current macroeconomic environment slightly favors large, high-quality companies, especially in a context of increasing geopolitical risk and uncertainty,” they note.
And they argue: “Consider that the forward P/E ratio of the S&P 500 has fallen 10% from its October 2025 peak. Meanwhile, earnings growth among large-cap listed companies remains strong: since the start of the conflict in Iran, forward earnings estimates for large companies have increased by 5%, with technology firms accounting for two-thirds of that increase. This trend suggests that, despite persistent macroeconomic uncertainty, the risk-return relationship for large-cap companies remains attractive.”
