Overview
April saw the co-existence of two opposing forces, strong markets and escalating geopolitical instability. The U.S.-Iran conflict kept the Strait of Hormuz severely constrained, drawing out the oil supply shock into one that has made authorities such as the International Monetary Fund and World Bank to comment on its severity. The markets drove up the price of Brent Crude above $110 per barrel early in the month, while the International Monetary Fund raised its global inflation expectations and lowered its growth outlook.
Despite these pressures, major global stock indexes had a strong month, led by a renewed enthusiasm for artificial intelligence. The S&P 500 and Nasdaq hit all-time highs, with the market shrugging off it’s fear of high AI related CAPEX spending and embracing the positive earning surprises of companies such as Alphabet, Nvidia, and Micron.
Growth equities outperformed value by a notable margin according to their MSCI indexes. This was attributed to the AI technology names driving momentum. While the return attribution was weighted in large and mega cap names, the enthusiasm spread to smaller cap technology stocks, bringing the MSCI World Small Cap index end the month at a strong 9.1%.
Internationally, emerging markets had another stellar month, notably in Asia. The MSCI Emerging Markets Index ended at 14.7%, driven by Taiwan and South Korea producing gains of over 20%, from their leadership of the global AI supply chain.
Fixed income performance was more nuanced as elevated oil prices caused inflation concerns, which drove up yields. Fiscal spending concerns weighed on government bonds, and market optimism caused investment grade credit spreads to retighten, after loosening in March. The Bloomberg Global Aggregate Bond Index returned 1.2%.
Industrial metals and Energy strengthened from the Middle East conflict and an increase in demand of raw materials. Fertilizer saw a pull back from it’s strong rally last month.
Stocks and Commodities
Emerging markets once again led global equities in April, with Asia delivering 16.3% and the broader emerging markets delivering 14.7%. This was tracked by the MSCI Emerging Markets and Asia ex-JP indexes. The region fully recovered from it’s war-related pullback over March, with the continued recognition of reasonable valuations and leadership in the semiconductor supply chain.
In Developed markets, the S&P 500 return also showed to be strong at 10.5%. This was supported by a strong earnings season, especially from both technology and financials. At the end of April, nearly two-thirds of companies had reported earnings with positive earnings surprises tracking well above historical norms. The S&P Communication Services sector ended with an 18.5% gain, and the Technology sector ended at 17.5%. Notably, the Philadelphia Semiconductor Index rose close to 40%.
After Canada’s strong start to the year, Canadian Equities underperformed, with a moderate 3.8% gain. Even with the strong price of oil, already high expectations gave little room for energy stocks to run, leaving the sector with a 2% gain for the month. Precious metal prices were relatively flat over the month, and fertilizer experienced a pullback from it’s huge run over March. This led to the Canadian Materials sector pulling back over 5%. The Communication Services sector also underperformed, due to higher interest rate expectations and regulatory pressure. Financials and Health Care saw a rebound, leading the index with a 10.6% and a 13.2% gain, respectively.
Japan’s TOPIX index gains were more modest with a return of 6.6%, due to limited direct exposure to semiconductors. A major factor weighing on the TOPIX was Japan’s accelerating inflation backdrop. Data released in April showed that headline CPI accelerated to 1.5% in March, while core inflation rose to 1.8%, driven by higher goods and transport costs as Middle East tensions pushed up global energy prices.
Europe ended the month with a comparatively modest gain of 5.7%. The region saw early month strength fade along with the prospects of a ceasefire in the Middle East, as well as business activity contracting. The eurozone composite PMI fell to 48.6, with contraction territory being below 50. This was it’s first drop in 16 months. This reflected weakened services demand and rising input costs directly linked to the Middle East conflict.
The UK was the clear laggard this month, with the FTSE All-Share ending with a 2.8% return. This was due to its structural tilt toward energy and defensives, sectors that received choppy returns linked to geo-political induced volatility. The Bank of England released a Monetary Police Report showing the UK’s CPI rose to 3.3% in March and expected inflation to rise further, raising chances that the central bank will increase rates.
Commodity prices strengthened by 4.2% overall, with energy leading the increase at 7.7%, followed by industrial metals at 5.0%. Fertilizer, such as Urea, experienced a retracement from March’s aggressive price appreciation. The World Bank’s Commodity Markets Outlook highlighted that the Middle East conflict had triggered the largest oil supply loss on record, with energy prices projected to rise 24% in 2026 and industrial metal prices continued to be supported by structural demand from AI data center expansion.
Bonds
Government bond markets delivered subdued results in April as investors reassessed inflation risks. The renewed climb in oil raised concerns that inflation could remain elevated, prompting a shift to tighter monetary policy globally.
The Canadian bond market was essentially flat this month, ending up 0.1%, tracked by the ICE Canada Broad Market Index. Corporate bonds outperformed from spread tightening as businesses showed strong earnings, but only slightly, at 0.4%. Bond Investors were shown to continue to wait for clarity on the outlook for energy prices and inflation.
Japanese government bonds reported the sharpest declines globally, dropping 0.7% as yields reached their highest levels since the late 1990s. While the Bank of Japan left policy unchanged, its firm stance and upgraded inflation projections led markets to bring forward expectations for further rate hikes. Additionally, Japan’s reliance on imported energy magnified the impact of rising oil prices, this culminated in 10-year yields rising to their highest level since 1997.
European markets faced similar challenges and remained generally flat. Investors priced in stagflation risks, due to ongoing energy supply disruptions and weakening business sentiment across the region, leading to expectations of tighter monetary policy. A rate hold decision from the European Central Bank later in the month, tempered bond losses, however. Some government bond markets, such as Italy, managed a small gain of around half a percent, from starting with higher yields and supported by credit spread narrowing.
UK Gilts declined 0.5% as persistent domestic inflation and policy uncertainty weighed on sentiment. Higher energy prices added to the UK’s already sticky inflation backdrop, prompting markets to price in further Bank of England tightening to the tune of two hikes before year end.
U.S. treasuries remained flat as well. While the US did see an increase in yield expectations and core PCE remained firm, the bond market was supported by the US position as a net energy exporter, as well as the strong earnings growth. Credit spread tightening gave high yield corporate credit a boost, gaining 1.7%.
Conclusion
April demonstrated how financial markets can advance even when geopolitical conditions remain unstable. Despite the ongoing oil supply disruption, equities held firm as investors focused on the resilient earnings and ongoing strength in AI linked technology. However, the risk of inflation remains high, and generally, global growth prospects remain muted. Economic outcomes are depending heavily on whether the Strait of Hormuz re-opens. This reinforces the need for portfolio diversification that strikes a balance between long term structural themes and protection against the effects of further geopolitical uncertainty.
