Equities rally on earnings strength while geopolitical risks linger

Markets are still navigating a fragile balance between improving sentiment and lingering geopolitical risk.

 
On the geopolitical front, developments in the Middle East remain fluid. While ceasefire headlines and periodic reopenings of the Strait of Hormuz have helped ease immediate supply fears, disruptions to flows continue to linger, keeping a residual risk premium embedded in energy markets. The latest reports suggest the second round of peace talks were fruitless. The issue seems to be internal divisions in Iran, with some sections seemingly leaning in favour of further escalation.

Despite this, equity markets have shown notable resilience. The S&P 500 and Nasdaq have pushed to fresh highs, supported by strong earnings momentum and continued optimism around growth sectors such as technology. Investors appear to be focusing more on the direction of risk — whether things are improving or deteriorating — rather than the absolute level of geopolitical tension. 

Earnings season is playing a key role in reinforcing this narrative. Early results, particularly from financials, have been solid, with robust profits driven in part by volatility and trading activity. At the same time, expectations for continued double-digit earnings growth remain intact, helping to justify elevated equity valuations even as macro risks persist.

Nasdaq 100 daily chart

_{Past performance is not a reliable indicator of future results.}

However, there are emerging signs of strain beneath the surface. Higher energy costs are beginning to feed into inflation and input prices, which could eventually weigh on margins, particularly in energy-intensive sectors. Some early earnings reports have already hinted at these pressures, and forward guidance will be critical in determining whether companies can continue to absorb or pass on these costs.