– Shakespeare, Macbeth, Act I, Scene III
“Nothing is but what is not.”
Last month we described an extraordinarily difficult environment for investors, with few places to hide as oil prices surged, bonds sold off and equities fell sharply across the board. April presented a different puzzle entirely. The physical disruption to global energy supply has, if anything, worsened since March: the Strait of Hormuz remains effectively closed, Gulf oil production is down by at least 10 million barrels per day, and Iran has shown no inclination to cede its newfound leverage over the world’s most critical energy corridor. And yet, the S&P 500 delivered its best monthly return since November 2020, closing above 7,200 for the first time, as the VIX fell 30% over the month to close at 16.9 – a level more consistent with a benign macro backdrop than with an active oil shock.
Throughout April, oil prices swung violently with each diplomatic development – falling -11% in a matter of hours when the 8 April ceasefire was announced, recovering as implementation stalled, dropping again on 17 April when Iran declared the Strait open, and surging once more as that announcement proved as hollow as the first. The equity market, by contrast, absorbed these moves with remarkable composure. On the initial ceasefire news, the STOXX 600 posted its best single-day gain in over four years, the VIX fell sharply, and risk assets rallied broadly – then largely held those gains even as the Strait remained closed in practice. Iran conditioned passage, charged tolls of over $1 million per vessel, and reimposed restrictions within days of each announced opening; the US responded with a naval blockade of Iranian ports, creating an effective ‘dual blockade.’ The final day of the month brought the starkest illustration of the divergence: Brent crude surged to a four-year intraday high of $126 per barrel after reports that US Central Command was briefing Trump on plans for a fresh wave of military strikes against Iran, before pulling back sharply to close around $114 as the immediate escalation fear subsided. Equities, meanwhile, ended the day higher. Financial and physical markets are, for now, telling very different stories.
There are, nonetheless, tentative grounds for encouragement. Trump has reportedly signalled a genuine willingness to end the confrontation, and Iranian President Pezeshkian is said to be open to a settlement under certain conditions. Markets are leaning heavily on the so-called TACO trade, in which every positive signal from Washington, however ambiguous, is taken as confirmation that an off-ramp is coming. The trade has served investors well so far this year, first through the tariff cycle and now through the Iran conflict. Whether it produces a durable agreement this time remains to be seen.
Markets are leaning heavily on the so-called TACO trade, in which every positive signal from Washington, however ambiguous, is taken as confirmation that an off-ramp is coming.
US growth came in at 2.0% annualised in Q1 – a rebound from Q4’s near-stall at 0.5%, and solid enough on the surface. But scratch beneath and the picture is less reassuring. Growth was largely driven by continued AI-driven investment and a rebound in government spending following the 43-day shutdown that weighed on Q4. Meanwhile, consumer spending softened as core PCE, the Fed’s preferred inflation gauge, accelerated to an annualised 4.5%, well above target. The Eurozone told a similar story, with near-zero growth and inflation heading in the wrong direction.
The policy picture may be the most troubling element of all. The Fed, ECB and Bank of England all held rates this week, as widely anticipated. But the tone from all three was notably hawkish, and markets are now pricing rate hikes in both Europe and the UK – a sharp shift from where expectations stood at the start of the year – while in the US any prospect of cuts has been firmly pushed back. There is also a degree of institutional uncertainty around the Fed itself, with the likely introduction of Kevin Warsh as new chair adding a further layer of complexity to an already difficult picture: cut, and you risk entrenching already elevated inflation expectations; hold or hike, and you risk further compressing consumer spending that is already showing signs of fatigue. There are no clean exits.
Markets are now pricing rate hikes in both Europe and the UK – a sharp shift from where expectations stood at the start of the year.
European equities had a strong month, posting their best gains since January 2025. The initial catalyst was the 8 April ceasefire, which produced the STOXX 600’s best single-day move in over four years; the broader recovery reflected relief at the ceasefire, strong bank earnings across the major lenders, and some rotation from US equities as investors reassessed relative valuations. The underlying economic picture, however, offered less to celebrate. Eurozone Q1 GDP of 0.1% was barely above stagnation, Germany’s services PMI fell four percentage points to 46.9 in April, while its government halved its 2026 growth forecast to 0.5%. With ECB rate hikes now being priced for later this year and energy costs remaining elevated, the headwinds for European corporates going into the summer are real.
Gold ended April just above $4,570 per ounce, down roughly -18% from its all-time intraday high in late January. The move lower is counterintuitive at first glance – major geopolitical crises are typically gold’s moment – but the explanation is straightforward. The oil-driven inflation shock has locked central banks into a hold-or-hike posture, pushing real yields higher and raising the opportunity cost of holding a non-yielding asset. When portfolios came under pressure earlier in the quarter, gold was also among the most liquid assets to sell. The mid-April recovery of around 5%, as ceasefire hopes briefly revived safe-haven demand, proved short-lived; stalled negotiations, rising oil prices and the prospect of a hawkish central bank week were enough to reverse it.
The structural drivers – central bank buying at substantial pace, US fiscal deficits running at around 6% of GDP, and ongoing reserve diversification away from the dollar – remain firmly in place, and institutional year-end targets from major banks remain meaningfully above current spot levels. A resumption of the Fed’s cutting cycle remains plausible on a 12-month horizon, and any move in that direction should restore demand and provide a fresh catalyst. We continue to view gold as an important strategic allocation and would treat further weakness as an opportunity rather than a reason to reduce.
We continue to view gold as an important strategic allocation and would treat further weakness as an opportunity rather than a reason to reduce.
April has delivered more than most dared hope at the start of the month. Equity markets have posted their best performance since November 2020, and the ceasefire – however imperfect in practice – has established a negotiating framework that keeps the prospect of resolution alive. The final days of the month brought further encouragement from earnings season: Alphabet, Amazon, Meta and Microsoft all beat revenue and earnings expectations, cloud growth across the hyperscalers was strong, and all four raised their full-year capital expenditure guidance. The AI infrastructure buildout is real, well-funded, and showing up in the numbers. There are genuine reasons for optimism.
Though the uncertainties that remain are not trivial. The physical oil market has not yet caught up with financial markets, macro conditions heading into the summer are uncertain, and central banks in Europe and the UK are edging toward hikes rather than cuts. It is precisely in this kind of environment – one where the range of outcomes remains wide – that diversification across return drivers earns its place. Strategies that can perform across a range of scenarios, including discretionary macro and diversified multi-strategy approaches, remain valuable complements to the equity exposure that has served portfolios well this month.
It is precisely in this kind of environment – one where the range of outcomes remains wide – that diversification across return drivers earns its place.
If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.com
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