War in the Middle East shapes market sentiment
The war in the Middle East continues to set the tone for global financial markets. As the conflict drags on, investors are seeing their fears of persistently high oil and gas prices materialise, with the negative impact on the economy becoming increasingly apparent. The large concentration of energy infrastructure in countries around the Persian Gulf, combined with the fact that the Strait of Hormuz has been closed for two months, significantly limiting the region’s ability to export oil and gas, plays a key role in this. As long as this narrow waterway – through which around 20-25% of global oil and gas consumption is transported – remains closed and Iran continues to attack energy facilities in the region, oil and gas prices are likely to rise further. Even if a swift resolution were to emerge, it would still take considerable time before production and transport capacity in the region return to normal levels.
Sharp movements in oil and gas markets
Financial markets have become somewhat less reactive to news headlines in general. However, reports pointing to further escalation still trigger clear risk-off moves, while news suggesting a swift end to the conflict has the opposite effect. The most pronounced price movements continue to be seen in energy markets, where prices have surged since the outbreak of the conflict. Traders have priced in a substantial risk premium. Overall, the price of a barrel of Brent crude is more than 12% higher this month, while the European gas price has fallen by 15%. Even so, energy prices are now around 55-60% higher than they were before the US attack on Iran.
Oil and gas price in perspective
"}},{"alignedImage":{"position":"bottom"},"componentType":"paragraph","richBody":{"value":"US equities show resilience
Equity markets staged a clear turnaround in April. Following the correction in March, both Asian and European equities recovered after having been hit hardest by disruptions to oil and gas supplies. The Stoxx Europe 600 index (+4.1 %, total return in euro) and the major Asian indices managed to recoup a substantial part of their earlier losses, supported by easing geopolitical tensions and an initial pullback in oil prices.
However, US equities clearly outperformed. The S&P 500 index rebounded strongly in April, posting a solid monthly gain of 9.4% (total return in dollars). This was underpinned by better-than-expected corporate earnings and the relatively favourable energy position of the United States as a net exporter of oil and gas. Measured in euros, returns were more moderate due to a slightly weaker dollar, but even then US equities outperformed many other regions that are net importers of oil and gas, such as Europe and emerging markets including South Korea and Taiwan. Major US indices are now back at, or just below, the records seen before the outbreak of the war in the Middle East.
Global equities also recovered. The MSCI All Country World index followed the S&P 500 index higher and reached new record levels in the second half of April. This recovery provided clear support for the equity portfolios within our investment strategies, which carry a significant allocation to US equities, following the volatility seen in the previous month.
Investors revise their expectations for central banks
Significant moves are also evident in bond markets, where government bonds have failed to act as a safe haven. Yields on US and European government bonds have risen sharply, as investors fear that higher energy prices will push inflation higher. Expectations for central bank policy are being repriced at a rapid pace. Markets no longer anticipate an interest-rate cut by the US Federal Reserve (the Fed) this year. For the European Central Bank (ECB), a rate increase in April is even being priced in. We view this as highly unlikely, as the expected rise in inflation is driven by a supply-side shock. Central banks can influence only the demand side of the economy. We therefore expect both the ECB and the Fed to adopt a wait-and-see approach for the time being.
Calm gradually returns after the March rate shock
As short-dated bond yields are closely linked to central bank policy rates, these yields in particular have remained relatively high and volatile. That said, the sharp rise seen in March came to a halt in April. By the end of April, the German two-year yield was trading around 2.7%, slightly higher than at the end of March and close to the peak levels reached earlier in the month. The German ten-year yield is hovering around 3.1 %, still near multi-year highs but without further upward acceleration.
A similar picture can be observed in the United States. By the end of April, the two-year yield is trading around 3.9%, reflecting persistently restrictive expectations for monetary policy, but without the strong month-on-month increase seen in March. The US ten-year yield stands around 4.4%, also showing greater stability than during the peak of geopolitical tensions and the surge in oil prices earlier this spring.
Volatility in bond markets remains elevated but has eased compared with the stress levels recorded in March. The MOVE index, a measure of expected volatility in the US Treasury market, remains well above its long-term average, but has fallen below the peak levels reached during previous episodes of market turmoil, including those seen last year.
"}},{"componentType":"sectionTitle","title":"What's happening in the economy?"},{"alignedImage":{"position":"bottom"},"componentType":"paragraph","richBody":{"value":"Impact on economic growth difficult to assess
Numerous forecasts are circulating regarding the duration of the conflict and its economic impact, but in truth, no one knows for sure. Scenarios are therefore being continuously revised. What is clear is that the longer the conflict persists and the Strait of Hormuz remains closed, the greater the economic damage will be. Prolonged higher energy prices translate into higher energy costs for consumers and businesses, upward pressure on inflation and downward pressure on economic growth. In other words, stagflation. Our economists have lowered their growth forecasts for the major economies this year by several tenths of a percentage point.
Eurozone companies turn more cautious
The first effects of the war are already visible in the preliminary Purchasing Managers’ Index (PMI), an indicator of business confidence. The eurozone PMI declined to 48.6 points in April. This signals weakening economic activity and marks the lowest level in around sixteen months, compared with 50.7 in March. Prior to the outbreak of the war, sentiment among European companies had been relatively positive. Growth was holding up reasonably well, and expectations of additional government investment had fuelled hopes of an industrial recovery.
Those hopes have now been dented. Companies have become more cautious and are reporting higher input costs. Notably, manufacturing is holding up better than the services sector. The manufacturing PMI remained broadly stable at 52.2, while the services PMI fell from 50.2 to 47.4. This highlights the eurozones vulnerability. For energy-intensive industries, a recovery is becoming more challenging, while higher fuel prices may make consumers more hesitant. As noted, whether the economy strengthens again will depend heavily on the duration of the conflict.
Business confidence improves in the United States
In the United States, the preliminary PMI is now showing a different picture compared with a month ago. The composite PMI recovered from 50.3 to 52.0 in April, once again pointing to modest economic growth. The slowdown seen in March, when the index reached its lowest level since autumn 2023, has therefore been partially reversed.
As in the eurozone, differences between sectors are pronounced. The services sector remains the weak link: although the index has moved back above 50 , growth remains limited and new order inflows are at their lowest level in two years. Manufacturing, by contrast, is showing clear resilience. Output and new orders rose sharply, partly because companies are building up inventories in anticipation of supply-chain disruptions and further price increases. At the same time, price pressures and cost increases have intensified markedly. Input costs rose in April at the fastest pace since late 2022, leading in turn to the sharpest rise in selling prices since 2022. These price pressures are not only linked to higher energy prices, but also to broader disruptions in raw material and logistics chains.
Although the United States is a net exporter of energy, petrol and diesel prices are largely determined on global markets. As a result, recent increases in oil prices are feeding through to what Americans pay at the pump. Petrol prices in the US have risen by around 40% since the start of the war with Iran. Such a sharp increase is politically highly undesirable for President Trump, particularly with the midterm elections scheduled for November.
Confidence does not automatically translate into lower spending
It is important to add that a decline (or rise) in confidence among businesses and consumers does not automatically lead to a fall (or increase) in spending. Confidence, especially at present, is heavily influenced by the flood of news we are exposed to on a daily basis. Experience shows that consumers generally continue to spend as long as they have an income. What does change is where that money is spent. Households adjust their choices: sales of electric vehicles remain strong, while other categories of spending come under pressure. Travel behaviour is also shifting, with fewer long-haul trips to Asia and more holidays within Europe or closer to home. Consumers are adapting to uncertainty without cutting back consumption altogether. Broadly speaking, this is good news for many companies, which continue to report solid earnings expectations.
A neutral equity allocation remains the most appropriate
Despite all the geopolitical risks, the global economy is still in relatively good shape, although it has become more vulnerable. Rising energy prices are both growth‑dampening and inflation‑boosting. Against this backdrop, global earnings growth in the high double digits is still expected for 2026 and 2027. As a result, valuations – measured by price‑earnings ratios – are lower than before the war with Iran, despite the rally of recent weeks, but higher than at the recent lows. Overall, we therefore believe it is appropriate to maintain a neutral allocation to equities and bonds. This positioning also offers flexibility, allowing us to take some profit should markets continue to rise, or to increase exposure if a new correction were to emerge.
We remain positive on emerging markets
Within equities, we maintain a neutral stance on both US and European equities. Should an agreement with Iran be reached, we believe European equities could close some of the gap with US markets. In addition, we remain overweight in emerging market equities and underweight in Japanese equities. Higher energy prices, risks of disruptions to energy and commodity supply, and a stronger dollar once again pose headwinds for emerging markets in the short term. Japan, however, is even more sensitive given its near‑total dependence on energy imports and the direct negative impact of higher oil prices on corporate profitability. The underlying earnings outlook for emerging market equities remains relatively the strongest. For this year, earnings growth of around 45% is still expected, which would once again make emerging markets the fastest‑growing major equity region. Valuations are around their long‑term average, whereas many developed markets are now clearly trading above it.
Underweight position in the energy sector maintained
We are also maintaining our underweight position in energy stocks. Given their high correlation with oil prices, a neutral allocation would have been more favourable, but we do not believe it is prudent to chase energy stocks at current price levels. Markets continue to assume that higher oil prices are temporary, with prices for deliveries later this year trading more than 30 dollars below current levels. Earnings expectations have been raised sharply but are already reflected in higher share prices.
Better opportunities in the energy transition
We prefer to focus on opportunities linked to the energy transition, energy efficiency and electrification. When energy prices rise sharply, demand for energy tends to fall as consumers and businesses use energy more sparingly. An energy crisis also reinforces the urgency of moving as quickly as possible from fossil fuels to renewable energy. This transition is not only necessary to reduce CO₂ emissions, but also to lessen dependence on imports of oil and gas, often from countries on which reliance is strategically undesirable. Energy autonomy and stable prices are therefore of great strategic importance to governments. We see attractive opportunities for companies active in areas such as electricity infrastructure and energy efficiency – notably within utilities and industrial sectors, which have already performed well recently thanks to the rapid growth of AI and data centres – to benefit from this structural growth trend.
Technology stocks remain attractive
We also maintain our overweight position in IT stocks. In the United States, the so‑called ‘Magnificent 7’ have outperformed the broader market this month, supported by their strong cash flows and solid balance sheets, which give them a relatively defensive character, perhaps unexpectedly. Certain software stocks, which have come under pressure due to fears of AI‑related disruption, can also be considered relatively defensive investments because of their high share of recurring revenues from subscriptions. Overall, earnings growth in the IT sector remains superior, while valuations have fallen to below their long‑term average.
Government bonds under pressure; high‑yield credit relatively resilient
Upward pressure on long‑term yields in developed markets was already significant due to concerns about public finances and the large supply of government bonds. Added to this are inflation concerns stemming from rising energy prices. Short‑term yields have also risen sharply as expectations for central bank policy have shifted. As a result, the yield curve has flattened. While the recent rise at both ends of the curve appears somewhat excessive to us, we continue to consider an underweight position in government bonds appropriate. In the event of a de‑escalation of the war and lower energy prices, bonds with shorter maturities would become particularly attractive, as the risk‑return profile is simply much more favourable.
At the same time, we maintain our preference for spread products, meaning bonds that offer an attractive risk premium. These are mainly found in high‑yield corporate bonds and emerging market debt. An advantage of both categories is their relatively low duration, implying shorter remaining maturities and lower sensitivity to interest rate movements. Moreover, the running yield provides an important buffer in the current volatile environment.
"}},{"componentType":"linkList","iconTitle":{"title":"Read more"},"textLinks":[{"text":"Monthly Investment Outlook (pdf)","url":"https://assets.ing.com/asset/95b9ffeb-3712-44b9-93e3-72a102776b9f/ING_Monthly-Investment-Outlook-May-2026.pdf"},{"text":"2026 Investment Outlook","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-home"},{"text":"More market views","url":"/en/personal/investing/market-news-and-views"}]},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. The value of your investment may fluctuate. Past performance is no guarantee of future results. Read more about the risks of investing.
This publication has been prepared on behalf of ING Bank N.V. and is intended for information purposes only. ING Bank N.V. obtains its information from sources deemed reliable and has taken the utmost care to ensure that the information on which it based its views in this publication was not incorrect or misleading at the time of publication. ING Bank N.V. does not guarantee that the information it uses is accurate or complete. The information contained in this publication may be changed without any form of announcement. Copyright and data file protection rights apply to this publication. Data from this publication may be reproduced provided that the source is stated. ING Bank N.V. has its registered office in Amsterdam, commercial register no. 33031431, and is regulated by the Dutch central bank De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM). ING Bank N.V. is part of ING Groep N.V.
"}}]},"hasMacro":false,"id":"66802dd8-d77b-486f-8e5b-cb5280d01911","localeString":"en-GB","mainHeaderZone":{"backLink":{"textLink":{"text":"Market news and views","url":"/en/personal/investing/market-news-and-views"}},"componentType":"productHeader","coreHeader":{"body":"29 April 2026 – Rising share prices are masking pressures from oil, inflation and interest rates, even as strong US earnings offer support.","headerImage":{"extension":"jpg","original":"https://assets.ing.com/asset/52dbebfc-9fba-45ea-bebe-cff6b820c36b/Mexico-desktop.jpg","transformBaseUrl":"https://assets.ing.com/transform/52dbebfc-9fba-45ea-bebe-cff6b820c36b/Mexico-desktop","type":"image","width":953},"subtitle":"Market Outlook: May 2026","title":"Hope and fear keep markets in balance"}},"publishDate":"2026-05-01T11:52:27.123+02:00"}}