April proved more constructive than feared, as a Middle East ceasefire helped keep a lid on oil prices despite ongoing disruption to key shipping routes. Markets rebounded sharply, with US equities reaching fresh highs, supported by renewed strength in technology stocks. While concerns remain around geopolitics and the economic impact of prolonged disruption, investor focus has quickly shifted back toward earnings and innovation – for now.
April proved a far more supportive month for financial markets than many had expected at the end of March. Concerns over a prolonged escalation in the Middle East eased as the recently agreed
ceasefire broadly held, keeping oil prices in check. Nevertheless, we are clearly not out of the woods, as shipping through the all-important Strait of Hormuz remains highly disrupted. This has obvious implications for oil and gas prices, with roughly 20% of global oil consumption normally passing through the Strait, but also for other areas such as fertiliser, and helium which is used in semiconductor manufacturing – and by the occasional sinister clown.
We won’t pointlessly speculate on when this conflict might end, but the speed of the market rebound may still raise an eyebrow, with two of the three main US stock markets reaching fresh all-time highs during the month. One reason for this optimism is that some of the disruption has been offset through oil being redirected via pipelines and released from strategic reserves. Regardless, the longer this persists, the greater the economic impact is likely to be, and the market’s confidence was beginning to look tested as April drew to a close, with oil prices creeping higher once more.
Another support came in the form of US technology stocks. Long the market’s darlings, the sector had wobbled as behemoths like Meta and Amazon embarked on a serious spending splurge. This was largely in the name of our future robot overlords, Artificial Intelligence – it’s canny to be polite early, so they’ll be nice to us when they take over. Yet all that spending on data centres, chips and the like, reduces cash for shareholders and has, in some cases, increased borrowing. This led to some rather impertinent questions on whether, not just when, this would translate into higher profits. However, the mood music turned once more, with technology stocks driving markets higher on expectations that this spending will indeed lead to substantial future returns; we explore this in more detail below.
Overall, April was a useful reminder that markets can move quickly from fear to optimism. Just weeks after investors were worrying about conflict, inflation and slowing growth, attention had shifted back toward earnings and innovation. Such are the ebbs and flows of markets. Bottom Line As we wrote last month, whilst scary headlines and wobbly markets can create a temptation to make changes, often the best course of action is to stay the course. This is even more pertinent when events are moving quickly and outcomes appear quite binary. Nevertheless, although markets have moved on from the Middle East, we would suggest it is best to be braced for them to come back into focus at some point.
Q&A
What’s on your mind?
What’s driving technology share prices?
AI remains one of the dominant themes in markets, with the largest technology companies continuing to invest billions in data centres and infrastructure. The main beneficiaries have been semiconductor companies, which provide the essential “picks and shovels” behind the AI build-out. A key question has been whether this heavy spending will translate into real financial benefits. This month, both Microsoft and Meta announced significant job cuts, reducing their combined workforce by over 16,000 roles. While difficult, these moves free up capital for further AI investment and point to early signs that AI is beginning to improve efficiency and productivity. AI itself is also evolving. Rather than simply acting as chatbots, newer systems are increasingly able to complete more complex tasks and manage parts of workflows independently. This strengthens the case for meaningful productivity gains over time. Concerns around energy demand have also eased slightly. Some of the largest AI companies are now developing their own dedicated power solutions, helping ensure data centres can continue to operate reliably despite rising electricity needs.
What’s next for inflation and interest rates?
Prior to 28 February, inflation across most developed markets had been falling, and expectations were building for interest rate cuts to continue. However, disruption to global oil supply, driven by the conflict in Iran, has complicated that picture. In the UK, markets quickly shifted to expecting the possibility of interest rate increases, as inflation has moved higher again, largely due to energy prices. The Bank of England kept rates unchanged at 3.75% in April, choosing to wait for more clarity before making any changes. The Federal Reserve also left rates unchanged. In the US, there are still concerns about inflation, but there are also signs the job market may be starting to slow, pulling decisions in different directions. The European Central Bank took a similar approach, holding rates steady. Inflation rose in March, and policymakers have warned that further increases are possible, meaning rate hikes later this year cannot be ruled out. Overall, central banks are trying to balance keeping inflation under control while not putting too much pressure on economic growth. For now, most are taking a cautious approach as they assess how the situation develops.
Private Credit, what is lurking in the shadows?
Private credit (PC), where investment funds, rather than banks, lend directly to companies, has been making headlines recently, and not always for the right reasons. After rapid growth over the past decade, the market is now estimated to be around $4 trillion in size. Although regulation is improving, private credit can still lack transparency. A key issue is liquidity: many of the underlying loans are difficult to sell quickly, yet some investors expect to access their money at short notice. This has become more visible as private credit funds, once largely limited to institutional investors, have opened up to a wider retail audience. In some cases, this has led to increased withdrawal requests, with certain funds placing limits on how much investors can take out at any one time. While these limits are a normal feature of private markets, they can come as a surprise if expectations are not clearly set. At present, risks appear contained, and the likelihood of private credit triggering a broader financial crisis remains low, though not zero. While the relatively stable returns can be appealing, it is important investors understand what they are buying. A degree of caution is warranted.