To The Moon

UOBAM’s Strategy Group sees more scope for risk-taking as US-Iran tensions cool and market focus shifts back to company fundamentals.

US and Iran step away from the brink

While the outcome of the US-Iran war remains difficult to predict, it does appear that international attempts to lower the temperature in the Middle East are paying off. The two-week US-Iran ceasefire announced on 8 April has now been extended indefinitely, and the Israel-Lebanon ceasefire which was set to expire last Sunday has also been extended by three weeks. 

This de-escalation had already been anticipated by global stock markets. Almost all major indices bottomed at the end of March and have trended higher through April despite elevated oil prices. Korea and Taiwan are currently leading gains, while Japan and the US have recovered to pre‑war levels, with the S&P 500 managing to hit an all‑time high on 17 April.

Fig 1: Index gains (%): 27 Feb – 24 Apr 2026

Source: Bloomberg, as of 24 April 2026

Are markets overconfident?

So do investors simply have their hands over their ears? Are they choosing to ignore the possibility of more bad news?

The UOBAM Strategy Group at its recent meeting acknowledged that there remains a lack of clarity on several major issues. Importantly, a timeframe for resolution of the war and normalisation of maritime traffic through the Strait of Hormuz remains in doubt. A stalemate could drag on for months or even years. After all, as we have seen, the Russia-Ukraine conflict continues to smoulder four years later.

Without such a resolution in sight, oil prices look set to stay high, threatening previous inflation forecasts. It is also notable that although inflation fears have eroded consumer confidence in the US and elsewhere, consumer spending has remained resilient so far. This suggests that consumers are worried but remain hopeful, possibly because higher oil prices have yet to filter into the real economy. But if and when this happens, consumer spending could start to flounder.  

Clearly, amid a drying up of military options, both US and Iran have shown willingness to negotiate a deal. However, a substantial stumbling block is the 2015 nuclear agreement between Iran and UN Security Council members, also known as the Joint Comprehensive Plan of Action (JCPOA). President Trump withdrew the US from this agreement in 2018 and now promises that his deal with Iran will better the terms of the JCPOA. This is proving difficult because since 2018, Iran has vastly exceeded the tight limits on uranium enrichment and stockpiling imposed by the JCPOA. Going forward, Iran has proven to have leverage over the Strait of Hormuz and may be unwilling to revisit the original terms, let alone agree to further concessions.

Positives offsetting negatives

That said, while geopolitical risks remain high, there are strong positive fundamentals that justify some optimism over the market outlook. Although investors should not expect a straight line upwards, here are three factors that lead us to conclude that the worst is over for markets: 

#1. AI leaps forward

The US’s military actions in Venezuela and the Iran war have hogged much of the news headlines this year, masking significant developments within the AI space. In fact, 2026 is seeing the revolutionary adoption of agentic AI – the ability of AI applications to perform autonomous tasks without constant human oversight. Previous concerns about AI overspending have eased as confidence has grown that computing infrastructure is going to be in high demand.

For many corporations, this means that AI is starting to be used to initiate processes, update account details, trigger procurement or redirect inventory, all without human intervention. The potential growth in AI demand and the efficiencies this affords businesses have yet to be fully reflected in share prices. In coming months, as attention gradually returns to company fundamentals, we think agentic AI will be the primary source of an investment boom.

#2. No signs of a global recession 

Despite the energy price shock and supply disruptions so far, the global economy is still expected to grow at a reasonable rate.  Based on the assumption that the war is limited in scope and duration, the IMF’s World Economic Outlook released in April projects global growth to reach 3.1 percent in 2026 and 3.2 percent in 2027. 

This resilience stems from the projection that the US and China, the world’s top two economies, will grow at a healthy pace of 2.3 and 4.4 percent respectively this year, driven by technological innovation and high-tech manufacturing.

The report also highlights the need to look beyond the immediate implications of war and take a medium-term view. In the wake of current hostilities, there is the potential for a faster transition to renewable energy sources and more diverse trading relationships.  These developments could help fuel new investment opportunities despite heightened geopolitical uncertainties.

#3. Good business confidence and earnings growth 

Last week’s flash US PMI numbers from S&P Global showed a rebound in April following near stagnation in March, suggesting that business activity and confidence remains buoyant.

The manufacturing sector is leading the way, with the flash US manufacturing PMI hitting a 47-month high of 54 in April. While this increase was partially driven by stockpiling in anticipation of war-related shortages, manufacturers were optimistic that their output would remain strong for the rest of the year, based on the recent upturn in new orders and hopes of tariff-led reshoring. Manufacturers also expect their additional investment in marketing to start paying off. 

The positive business sentiment is reflected in the latest earnings results. To date, about a quarter of S&P 500 companies have reported actual results for Q1 2026. Of these, 84 percent reported that their actual earnings beat estimates by 12 percent on average. Positive EPS surprises were led by companies in the Industrials, Information Technology, Energy, Health Care, and Materials sectors. These results point to an average earnings growth rate of 18.6 percent for 2026. 

Opportunity risks are increasing

At the time of writing, efforts to arrive at a diplomatic resolution to the war have stalled. These are highly uncertain times and we would urge that investors stay cautious and vigilant. 

However, despite the rhetoric, it appears unlikely that either the US or Iran will opt for a significant re-escalation of military action and most of the worst-case scenarios that seemed possible at the start of the conflict now appear unlikely. Against this backdrop, we expect more investors to dip their toes back in the market as company fundamentals and AI-based productivity gains come increasingly to the fore.

This means that the costs of staying away will get bigger, even if US-Iran negotiations become protracted. As such, we think it is appropriate to slightly overweight equities in our medium and longer-term portfolios. We also have a small preference for Asian equities, reflecting selective opportunities at the market and sector level.

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