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Earnings strength and easing risks support markets

2026-05-08

Alex Cousley, CFA

Alex Cousley, CFA

Director, Senior Portfolio Manager




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Key takeaways

  • Global equities rise on strong earnings and improved sentiment
  • Middle East tensions ease, supporting risk assets
  • Government bonds offer improved value amid rate developments

Risk assets advance on strong earnings

It was a positive week for global equity markets, supported by continued strength in the U.S. earnings season.

Earnings growth has exceeded expectations by a wide margin, running close to double initial forecasts. Strength has been broad-based, with small cap and mid cap companies also delivering better-than-expected results alongside large caps.

A key driver remains the ongoing investment in artificial intelligence. This earnings season has seen a notable increase in capital expenditure intentions for 2026, reinforcing the durability of the AI theme.

This dynamic has also supported markets outside the U.S. For example, South Korea has continued its strong performance, driven by demand for memory and semiconductor-related industries.

Easing geopolitical tensions support sentiment

Geopolitical developments in the Middle East also contributed to improved market sentiment.

Recent progress toward a potential memorandum of understanding between the U.S. and Iran has helped ease tensions, at least in the near term. While the situation remains fragile, the reduction in immediate risks has supported equity markets and contributed to a more constructive backdrop for risk assets.

From a broader perspective, the economic cycle in the U.S. continues to transition from resilience toward a potential phase of acceleration. Other regions face some headwinds from higher energy prices but remain broadly resilient.

Investor sentiment has also improved. After appearing slightly oversold at the end of March, sentiment indicators have moved back toward modestly overbought levels. However, these levels are not yet extreme and do not suggest that risk has built excessively.

Rates and valuation opportunities

In fixed income markets, there has been some relief in yields over the past week, partly reflecting the easing in geopolitical tensions.

In Australia, the Reserve Bank of Australia raised interest rates for the third time this year. While the decision reflects ongoing concerns about inflation, forward guidance was somewhat less hawkish than markets had anticipated.

From a valuation perspective, this has created opportunities in government bonds. Australian government bond yields are trading close to 5%, representing a premium relative to U.S. Treasuries and above estimated fair value.

More broadly, government bonds appear more attractive than they did several months ago and may offer diversification benefits should growth volatility re-emerge.

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