WeeklyWatch – Calm shores emerge despite conflict

6th May 2026

Key Takeaways

  • US shares have the best monthly performance since 2020
  • Investor sentiment remains positive following upbeat earnings and intact AI investment thesis
  • Energy and associated costs as a result of the Iran war being assessed by investors

Last week saw strong tech earnings, accelerating AI investment and resilient investor confidence push US markets to record highs. But on home shores, while people flocked to the coast for the bank holiday, the shorter week across Europe didn’t stop central banks’ hawkish outlook.

Stock Take

US shares reach new highs thanks to tech

By the end of the week, the S&P 500 and Nasdaq reached record highs. And although there was a spike in energy prices, it didn’t dampen market sentiment, with a strong corporate earnings season and positive AI news flow providing the boost.

As reporting season draws to a close, the four key US-based cloud operators (known as hyperscalers) – Microsoft Azure, Amazon Web Services/AWS, Google Cloud and Meta – revealed double-digit revenue growth. This demonstrated strong end-user demand and payoff for the high spending that has already taken place.

What this does is encourage these companies (which make up almost 20% of the S&P 500’s weighting) to raise their aggressive spending plans even further. Before the first quarter 2026 results were revealed, they were expected to spend just over $650 billion on capital expenditure in 2026. Collectively, the figure is now expected to be over $700 billion. Apple also revealed strong earnings at the end of the week.

So far in quarter two, US companies have reported annual earnings growth of nearly 30%, which is more than four times the mid-single digit average growth that’s been recorded over the last five years.

Increased oil prices pushed aside by investor confidence

It was a four-year high for Brent crude oil, which reached $126 per barrel in the middle of the week but then fell back to $110 per barrel as the week came to an end. The spike came about following reports that the US was considering more attacks on Iran in order to break the political and military stalemate. To compare, Brent crude oil cost $61 per barrel at the start of 2026, and on the eve of the war’s outbreak, it was $73 per barrel.

While the Strait of Hormuz stays closed to tankers, the deficit between global energy usage and global supply will get bigger. Global inventory levels are currently serving as a buffer against the energy imbalance. Numerous analysts cite May as a critical month in seeing if the price of oil stays above $100 per barrel for the foreseeable future.

There are only a few sectors, including transportation (airlines especially), that have reported being severely impacted as a result of the higher energy costs. Conversely, the current boosters of market sentiment, like AI and technology, seem to have suffered very little. The limited effects have therefore contributed to the easing in equity market volatility. Even though energy prices are high, the low stock market volatility could suggest that investors believe the worst of the conflict has come to an end. Additionally, it may also be a sign that markets aren’t expecting relations between the parties to worsen.

Will central banks spoil the party?

Three major central banks met last week to decide on interest rate changes, namely the US Federal Reserve (Fed), European Central Bank (ECB) and the Bank of England (BoE). Each decided not to change their rates – a move that was expected by investors. Although it was a holiday-shortened week across Europe, the mood for both the ECB and BoE was hawkish, with investors expecting both banks to increase their interest rates to battle the risks to inflation and growth in the face of the Iran war.

Stagflation (low economic growth and high inflation) risks are becoming more noticeable across Europe. Economic growth of just 0.1% quarter-on-quarter in January to March (which was below expectations) contrasted with an annual inflation rate rise from 2.6% to 3.0% between March and April. Barring a rapid and total resolution to the Middle East war within the next few weeks, investors believe that the ECB will increase their interest rates by 0.5% at their next meeting on 11th June.

With an already weak growth outlook, vulnerability to energy inflation is a problem for the UK and is likely to negatively impact prospects. Elections taking place this week are also not expected to spell good news for the government. This highlighted risk profile has resulted in UK gilts offering the highest bond yields among the G7 group of advanced economies.

Last week, one member of the BoE’s interest rate setting committee voted in favour of an interest rate increase. It’s expected by investors that when the Bank next votes on 18th June, there’ll be an increase in interest rates. The Fixed Income Strategist at St. James’s Place, Greg Venezilos, commented:

“In the current environment, it’s good to have a dissenter – it shows that the bank is watchful and alert to the threat of higher inflation. This willingness to hike rates sends a reassuring message to investors.”

Warsh edges closer to Fed chair position

Holding interest rates was less significant news for the Fed; there was more interest in the news that the Senate banking committee approved the nomination of Kevin Warsh as the new Fed chair. The nomination is likely to go to a vote by the full Senate next week. President Trump has spoken publicly about his desire for interest rates to be cut and investors are unsure about what Warsh’s leadership of the central bank will mean. Warsh has expressed that he would prefer less frequent transmitting of Fed thinking on rates to markets, and there is further concern as to how resilient Warsh will be when he faces political pressure.

Wealth Check

Royal assent for Pension Schemes Bill after months of back and forth

The House of Lords and the House of Commons have been debating the Pension Schemes Bill for months, and last week it received royal assent.

A breakthrough was reached when the Lords agreed to a scaled-back version of the mandation powers, which had been one of the biggest points of contention between the two houses. These allow the government to influence how pension schemes can invest savers’ money.

Under the new law, and following concessions made by the Commons, the House of Lords was satisfied that the mandation powers will now have the appropriate safeguards in place.

The Pension Schemes Act 2026 has been welcomed by the pensions industry. It’ll bring about major reforms to the UK pensions system and require schemes to prove that they will deliver value for money for pension savers.

What other measures are included?

  • The value for money framework will protect savers from being stuck in underperforming schemes. Additionally, it’ll standardise how value is assessed, which will make schemes easier to compare and more transparent.
  • Small pension pots can be automatically combined.
  • It will reduce costs and increase choice by creating larger defined contribution ‘mega funds’ of at least £25 billion.

Renters’ Rights Act in action

On Friday 1st May, the Renters’ Rights Act became law in England, with major changes for private landlords and tenants coming into place. Now, no fault-evictions are banned and landlords in the private rented sector can’t evict tenants without a valid legal reason.

Fixed-term contracts have also been removed, which means that all tenancies are open-ended. Landlords are allowed to raise rent on a property only once a year and with at least two months’ notice. Tenants are allowed to challenge increases if they feel these increases are unfair.

A ban on offers above the advertised price of properties on the market is also in place to put a stop to bidding wars. When an offer is accepted, landlords won’t be able to ask for more than one month’s rent in advance as part of the deposit.

In the Picture 

When experiencing times of economic uncertainty, central banks usually choose to keep borrowing costs higher in order to control rising inflation. For example, the Russia–Ukraine conflict created a spike in inflation and the BoE increased the base rate to 5.25%.

So far, the Iran conflict has resulted in the BoE keeping the base rate at 3.75%, but analysts are now expecting the BoE to increase the rate at least twice this year.

Consequently, lenders have been increasing the cost of new fixed-rate mortgages. The average fixed-rate mortgage deal is rising in the UK. The chart shows that the average five-year fixed-rate deal went up to 4.43% in March, compared to 4.01% in February.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP Approved 05/05/2026