By Daniela Hathorn, senior market analyst at Capital.com
Markets continue to navigate a fragile balance between improving investor sentiment and ongoing uncertainty regarding geopolitical tensions in the Gulf region, alongside evolving developments in the Strait of Hormuz — the world’s most vital energy artery.
News of an extended ceasefire and hopes for reopening the Strait of Hormuz have helped ease immediate supply concerns, yet ongoing disruptions reflect a persistent risk premium embedded in energy markets. Recent reports indicate that the second round of peace talks has stalled, with internal divisions presenting a significant obstacle to progress, adding further complexity to the regional landscape.
Despite this, equity markets have shown notable resilience. The S&P 500 and Nasdaq have pushed to fresh highs, supported by strong earnings momentum and continued optimism around growth sectors such as technology. Investors appear to be focusing more on the direction of risk — whether things are improving or deteriorating — rather than the absolute level of geopolitical tension. Earnings season is playing a key role in reinforcing this narrative. Early results, particularly from financials, have been solid, with robust profits driven in part by volatility and trading activity. At the same time, expectations for continued double-digit earnings growth remain intact, helping to justify elevated equity valuations even as macro risks persist.
Nasdaq 100 daily chart
Past performance is not a reliable indicator of future results.
However, there are emerging signs of strain beneath the surface. Higher energy costs are beginning to feed into inflation and input prices, which could eventually weigh on margins, particularly in energy-intensive sectors. Some early earnings reports have already hinted at these pressures, and forward guidance will be critical in determining whether companies can continue to absorb or pass on these costs.
