The Project Freedom was paused, meaning that the US abandons the idea to escort ships out of the Strait of Hormuz – as the initiative didn’t fare well with Iran. And the lack of further escalation in the Middle East was enough to divert investors’ attention back to earnings. The rally that paused for a few hours resumed.
The S&P 500 and Nasdaq pushed to fresh record highs, while the Stoxx 600 rebounded from its 50-DMA. Gains were led by technology stocks on both sides of the Atlantic. VanEck’s Semiconductor ETF traded at a fresh record, ASML rebounded 3.5%, and Infineon Technologies, a German chipmaker and one of Europe’s largest semiconductor companies, rose more than 8% to a record high before announcing earnings.
Today, the Kospi index confirms that optimism with more than a 6.5% jump at the time of writing.
So the market mood now flip-flops between AI optimism and Middle East headlines, with geopolitical worries having a smaller and shorter-lived impact as investors become used to the war headlines. I believe there is a certain underpricing of the risks here, but the reality is that the perfect calm for entering a position doesn’t exist. We are either confronted with geopolitical crises, trade wars or high valuations.
Today, it’s a mixture of all three, yet the major indices are doing well, including EM. MSCI’s EM index also hit a record high yesterday. The stock rally itself is serving as a hedge against inflation, though the risk of a sharp reversal cannot be ruled out given the uncertainties. Oh well.
Trade, war and tech worries haven’t really shown up in earnings so far. More than 80% of S&P500 companies have reported better-than-expected revenue so far. In Europe, around 45% of Stoxx600 companies surpassed revenue expectations. The gap is certainly due to the differing tech exposure of the two continents.
Again yesterday, AMD delivered a strong earnings beat, with Q1 revenue rising 38% YoY to $10.3 billion and data-centre sales surging 57% thanks to booming AI infrastructure demand. The company also guided Q2 revenue above expectations, reinforcing optimism around its AI accelerator and server CPU businesses. The market reaction was equally positive: AMD shares jumped 16% in after-hours trading as investors cheered the strong AI-driven growth outlook and improving visibility on future demand.
Super Micro Computer also jumped around 18% in after-hours trading after delivering mixed results: earnings beat expectations comfortably, helped by improving margins and strong AI server demand, but revenue missed estimates as some customer deployments were delayed. The company nevertheless issued upbeat guidance for the current quarter, signalling confidence that AI infrastructure spending remains robust. Investors focused on the stronger profitability and guidance rather than the revenue miss, as confirmation of the strength of the renewed AI-led optimism.
So this morning, with no further escalation in the Middle East and falling oil prices, US and European futures point to a positive start.
That relief is also notable in the US dollar index, which is trading lower this morning against most major currencies. The EURUSD is pushing above the 1.17 mark, while the USDJPY eased back toward 155.
On the data front, US figures were mixed yesterday. ISM data pointed to softer activity in March, while job openings fell less than expected in March and new home sales rose compared with a month earlier. Today, eyes will be on the ADP report, where expectations are that the US economy may have added around 118K private jobs in April.
What’s interesting is that predictions diverge. On one hand, the thousands of job cuts announced by big (and smaller!) tech companies due to AI replacement weigh on estimates. On the other hand, these same companies are spending hundreds of billions of dollars building massive AI infrastructure that also creates jobs — but those investments don’t hit headlines as hard as Big Tech layoffs do. So the question is whether job losses are stronger or softer than the job gains. I guess we will see.
The way the market processes the news will certainly be impacted by the positive vibes of the moment. Softer-than-expected jobs data could revive Federal Reserve (Fed) dovishness, pull yields lower and support a further equity rally. Meanwhile, stronger-than-expected figures could confirm that the US economy is not doing that badly after all, cement optimism and push equities to fresh highs.
Given the market’s resilience to bad news and enthusiasm around good news, I certainly don’t see the bears taking the upper hand for now. But selloffs happen suddenly.
One interesting point, though: some analysts note that the positive reaction to earnings beats is smaller than the negative reaction to earnings misses. That is confirmation that valuations are high and US equities remain expensive.
The question is whether this optimism could spread to other markets. The answer is: it depends. Middle East tensions have clearly shifted capital flows toward technology names, both inside and outside the US. European and UK stocks lagged behind tech-heavy indices like the Kospi and Taiex. Rising energy costs initially hit Asian indices harder, but the negative impact on market sentiment tends to last longer in Europe.
Given investors’ appetite for hiding from the war under the tech roof, the underperformance of European indices will likely remain in play until there is more clarity in the Middle East and, ideally, a notable retreat in energy prices. Otherwise, European economies could also face higher interest rates alongside a slowing economic outlook — and for cyclical European indices, that is not good news.
