Oil surges, yields spike, but equities refuse to break

The past 24 hours have been a stark reminder of the disconnect currently driving markets. Geopolitical tensions have intensified, oil prices have surged and bond yields have climbed sharply — all signals of rising risk. Yet equities, particularly in the US, have remained resilient, highlighting a market that is increasingly willing to look through near-term shocks in favour of stronger underlying fundamentals.

Oil markets have reacted most directly. Brent crude has surged above $110, reclaiming and surpassing previous highs seen earlier in the conflict as the geopolitical situation in the Middle East has deteriorated, with the Strait of Hormuz still effectively closed and little sign of meaningful progress in negotiations. This reflects a growing acceptance that the disruption to energy flows is not temporary but could persist, tightening global supply. The situation has been exacerbated by the UAE’s decision to leave OPEC+, which has raised questions about the cohesion of the cartel at a time when coordinated supply management is most needed. Together, these developments have embedded a significant geopolitical premium into oil prices and heightened concerns about a more sustained energy shock.

Brent crude daily chart

Past performance is not a reliable indicator of future results.

At the same time, the Federal Reserve has added to the pressure on markets, not through action but through tone. Policymakers signalled a more cautious stance than expected, acknowledging that higher energy prices could keep inflation elevated for longer. This has driven a sharp repricing in bond markets, with yields rising across the curve and breaking key levels. The move reflects growing concern that the combination of elevated oil prices and tighter financial conditions could weigh more heavily on growth than previously anticipated.

Despite these warning signals, equities have held up remarkably well. The S&P 500 has remained broadly stable while the Nasdaq 100 has even pushed higher, extending its recent rally. This is a notable shift from the early phase of the conflict, when equities and oil moved in opposite directions. Now, both are rising together, suggesting that markets are no longer treating higher oil prices as an immediate threat to growth. Instead, investors appear to be pricing a scenario in which the conflict becomes a prolonged but contained disruption, rather than a catalyst for a broader economic downturn.

Nasdaq 100 daily chart

Past performance is not a reliable indicator of future results.

The resilience in equities is largely being driven by earnings. With several major technology companies reporting, investors are reluctant to reduce exposure at a time when profit expectations remain strong. Forecasts for earnings growth in the coming quarters are still in double-digit territory, and there are signs that profit margins are holding up, supported by pricing power and productivity gains. In this environment, equities are being anchored more by fundamentals than by macro concerns.

There is also a behavioural element at play. Markets have repeatedly absorbed shocks in recent years — from geopolitical conflicts to trade tensions — without derailing the broader trend. This has reinforced a willingness among investors to buy dips and maintain exposure, even in the face of rising uncertainty. As a result, equities are effectively leaning into a best-case scenario, where earnings remain strong and the geopolitical situation does not escalate further.

This leaves markets in a fragile and asymmetric position. Oil and bond markets are increasingly pricing a more challenging economic outlook, while equities are pricing resilience. That divergence suggests that the current equilibrium may not be sustainable indefinitely. If energy prices remain elevated for longer, begin to feed more meaningfully into inflation, or start to impact corporate margins, equities may eventually need to adjust. For now, however, earnings remain the dominant force, allowing markets to hold together despite the mounting risks.