Market snapshot: light at the end of the tunnel 

A coiled spring has been unleashed as comments out of both the US and Iran gave investors hope that we're nearing an end to hostilities in the Middle East.

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With a mountain of cash reportedly on the sidelines, investors had been waiting for a trigger to put the money to work. This was provided by the US President confirming a timeline of two to three weeks before the US retreats, leaving others to restore trading through the Strait of Hormuz. At the same time, the Iranian President was said to be open to ending the war, subject to certain guarantees.

The main US indices surged on the news, but the damage is far from repaired. Levels are still below those at the outbreak of the conflict, and the S&P500 suffered its worst monthly performance in March since 2022, shedding more than 5%, with the Dow Jones and Nasdaq down by a similar amount. The relief rally trimmed some of the losses which have more recently been seen, although in the year to date the Dow Jones, S&P500 and Nasdaq remain down by 3.6%, 4.6% and 7.1% respectively.

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The technology sector had been at the eye of the storm and regained some stability, with the Nasdaq rising by almost 4%, underpinned by gains of 5.6% for Nvidia and 3.1% for Microsoft. Even so, Nvidia remains down by almost 8% this year and Microsoft by 22% and, when attention turns away from the war, it could well refocus on some of the concerns which had been circling the AI trade. At the top of that list is the lack of clarity on a return on investment for the hundreds of billions of dollars which have so far been spent by companies looking to be at the vanguard of the new technology.

Despite the undoubted progress, oil remains at around $101 per barrel, although dipping by 3% in recent trade. Reports of the United Arab Emirates preparing to help allies open the Strait of Hormuz by force could take some time until a coalition is established, and in any event there is already an increasing backlog of supply lost due to the duration of the conflict thus far.

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Asian markets also popped on the news, with the Nikkei 225 in Japan trading up to 5% higher, helped along by a business sentiment survey that had improved despite the overhang of the Iran conflict. Other indices in the region followed suit, with gains of more than 2% in Hong Kong and Shanghai, while South Korea’s Kospi index rose by as much as 8% after breezing past export expectations for March, propelled by new product launches and demand for semiconductors.

Ceasefire optimism inevitably washed onto UK shores, with a firm opening for the main indices as investors began to anticipate something of a return to normality. The FTSE100, which has been a relative beacon of light during the conflict although certainly not unaffected, opened strongly higher to bring its gains in the year to date to 4.3%, while the FTSE250 also rode the wave, reducing its losses to 3.5% so far this year.

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Babcock International Group (LSE:BAB) rose towards the top of the leader board after announcing an agreement to maintain continuity in their dealings with the UK Ministry of Defence, thus providing added earnings visibility to an already strong forward order book. Its neighbour in the defence sector Rolls-Royce Holdings (LSE:RR.) also spiked sharply following a broker upgrade, and there were pronounced markups across the board as investors moved back to a risk-on approach. 

The outliers were the oil majors which dipped slightly following the oil price decline, with Berkeley Group Holdings (The) (LSE:BKG) slumping by almost 12% as it revealed a pause on its land acquisition policy given the current backdrop. A modest recovery in sales volume was far from sufficient to offset the derailment of its strategy, and it remains to be seen whether others in the sector consider similar moves.