Client Update - 29th May 2026

I am not sure I completely believe the daily news of a possible peace agreement in the Middle East. Each day a different angle on a breakthrough, and then more bombings and harsh words. Again, today I read that the United States and Iran have reached a tentative agreement to extend the current ceasefire by 60 days while peace talks continue. This comes despite renewed clashes around the Strait of Hormuz, where both sides have exchanged fire as Israel intensifies its operations in Lebanon.

Each side has previously claimed progress, only for the other to deny it. Yet both have strong incentives to avoid escalation. A recent study warned that US defence contractors would need three years to replace key weapons already used in the conflict — a powerful reason for Washington to seek stability.

Recent US economic data shows a mixed picture. Inflation continued to rise last month, even as economic growth slowed more than expected. Consumer spending has weakened, suggesting households are becoming more cautious amid concerns about affordability and a cooling jobs market.

The war driven surge in oil and materials prices has pushed consumer confidence to new lows. Although oil prices have eased slightly this week, Brent crude remains over 30% higher than before the conflict.

There is a long held belief in financial circles that global markets act as a “guardrail” on political leaders — especially US presidents and even more so for Donald Trump. With American households now holding a record share of their wealth in equities, even higher than during the dot com boom, any major market downturn would be politically painful. This idea is sometimes called the “Trump Put” — the notion that the administration would reverse course on policies if markets fell sharply enough.

Recent events suggest markets are no longer influencing US policy on the Iran conflict. After an initial sell off early in the war, equities began rising again in late March as both sides signalled interest in peace. Since then, stocks have continued to climb, seemingly unfazed by developments in the Gulf.

Even a sharp drop in oil prices this week barely moved Wall Street. The main reason is the powerful counter trend coming from artificial intelligence, which has driven exceptional gains in semiconductor and technology shares. Corporate earnings expectations have improved, making geopolitical risks feel less urgent for equity investors.

While equities appear calm, the bond market remains more sensitive to oil prices. Historically, bond markets have been more effective than equities at forcing governments to change course. The most famous recent example was the sharp rise in UK gilt yields that contributed to the resignation of Prime Minister Liz Truss in 2022. President Trump has previously acknowledged delaying tariffs because the bond market was “yippy” (whatever that means).

But at present, neither bonds nor equities are putting meaningful pressure on the White House. I read this week a piece from DataTrek Research suggesting that the “strike price” — the point at which markets would force a policy reversal — is currently far away. They used the VIX index, a measure of market volatility, as a guide. A VIX level of 50 prompted a policy U turn on tariffs last year, while a reading of 30 led to softer rhetoric on Iran two months ago. Today, the VIX remains much lower.

Why? Investors appear increasingly convinced that the US economy is remarkably resilient. Despite trade tensions, conflict, and rising inflation, key indicators such as unemployment claims have remained stable. Colas argues that the pandemic changed employer behaviour: companies learned how hard it was to rehire staff after layoffs and are now reluctant to cut jobs. This job stability supports consumer spending and, in turn, the stock market.

Much depends on whether the Strait of Hormuz — a vital global shipping route — can reopen fully without further conflict. Many investors hope for a swift diplomatic resolution to avoid deeper economic damage. Yet paradoxically, the strength of the US economy and markets has reduced the urgency for political leaders to compromise. Without market pressure, more hawkish voices in Washington may feel emboldened, slowing progress toward a deal.

Despite geopolitical uncertainty, markets have shown remarkable resilience. Strong corporate earnings, rapid advances in AI related industries, and a surprisingly robust US labour market have helped offset global tensions. While risks remain, the underlying economic momentum — particularly in technology and services — continues to provide a solid foundation for long term investors. Do have a good weekend.