Global equities staged a powerful risk-on rally, driven by a decisive rotation back into artificial intelligence (AI) stocks.
April 2026 proved to be a month in which markets looked through considerable geopolitical turbulence to reach new highs. Tensions between the US and Iran continued to dominate headlines, with the Strait of Hormuz remaining severely disrupted and Brent crude pushing above $110 per barrel by month-end, despite intermittent ceasefire efforts and diplomatic overtures that continued to break down.
Yet the dominant market story was one of renewed confidence. Global equities staged a powerful risk-on rally, driven by a rotation back into artificial intelligence (AI) stocks. The S&P 500 and Nasdaq hit all-time highs, the Philadelphia Semiconductor Index rose close to 40% over the month, and the MSCI Emerging Markets Index was the standout index (+14.7%), powered by extraordinary gains in Taiwan (+26.2%) and South Korea (+38.2%), leading markets in the global AI supply chain.
The rally's breadth was as notable as its magnitude. Growth equities returned 12.4% against just 7.2% for value, reflecting investors' continued appetite for companies leveraged to the AI investment cycle. Developed market equities returned 9.6%, while small caps, up 9.1%, also participated strongly, driven in large part by smaller cap technology names rather than a broader cyclical recovery.
Fixed income delivered more nuanced returns. The Bloomberg Global Aggregate returned 1.2%. Rising yields caused by elevated oil prices and growing inflation and fiscal sustainability concerns weighed on government bonds, while robust earnings and risk-on sentiment drove investment-grade spreads tighter.
Commodities rounded out a broadly positive month, gaining 4.2% overall, with energy (+7.7%) and industrial metals (+5.0%) the clear outperformers— a reflection of rising oil prices and the surging real-world demand for materials underpinning the global AI data centre buildout.
Equities
Looking across equity markets, emerging markets were the standout of the month, with MSCI Asia ex-Japan returning 16.3% and broader MSCI Emerging Markets close behind at 14.7%. The gains were overwhelmingly concentrated in Taiwan and South Korea, where the AI semiconductor supply chain is most deeply embedded. For investors who had rotated out of these markets during the geopolitical turbulence of February and March, April represented a sharp reversal, with the MSCI EM Asia Index recouping all of its war-related losses and then some.
Within developed markets, the US led with the S&P 500 returning 10.5%, driven by a strong earnings season from both technology and financials. At the time of writing, just under two thirds of the S&P 500 by market cap have reported, with analysts estimating EPS growth of 14.5% year-on-year. The season has been notably strong, with 84% of reporting companies beating consensus earnings expectations, well above the historical average of 73%, and earnings coming in 28.6% above those expectations, compared to a long-run average of 6.3%, though this has been skewed by significant investment gains among hyperscalers.
Japan's Topix gained a more modest 6.6%, participating in the risk-on move but constrained by its more limited direct exposure to the AI theme. Europe ex-UK returned 5.7%, with the early-month optimism of a ceasefire fading as diplomatic efforts broke down and the regional Purchasing Managers' Index pointed to a contraction in eurozone business activity, suggesting that the ongoing energy supply disruption is continuing to weigh on the real economy.
The UK’s FTSE All-Share was the clear laggard, returning 2.8%. The FTSE's structural tilt toward energy, financials, and defensives worked against it in a month that rewarded growth and technology. Energy and bank stocks whipsawed with oil prices and ceasefire headlines, while a rise in the UK consumer price index to 3.3% raised the prospect of further Bank of England tightening, with markets pricing just over two hikes by year-end.
Fixed income
Government bond markets were mixed in April, with performance largely driven by renewed inflation concerns following the rise in energy prices. Markets moved quickly to reprice the path of monetary policy, with expectations for rate cuts pushed out, or in some cases, replaced by further tightening.
Japanese government bonds (JGBs) were the worst performing over the month (-0.7%). While the Bank of Japan left policy unchanged, a more hawkish tone and upward revisions to its inflation forecasts led markets to bring forward expectations for further rate hikes. This change in market sentiment, combined with Japan's sensitivity to imported energy, saw 10-year JGB yields rise to their highest level since 1997.
UK Gilts also declined (-0.5%), reflecting a combination of inflation persistence and policy uncertainty. Higher energy prices contributed to renewed inflation concerns, adding to an already sticky domestic inflation backdrop that has kept the Bank of England cautious. Against this backdrop, markets moved to price further rate hikes this year.
By contrast, US Treasuries proved more resilient (-0.1%). As a net energy exporter, the US is less exposed to higher energy prices, while a more balanced growth backdrop helped limit the extent of the sell-off.
European government bonds were more mixed. Higher energy prices and weaker activity data pushed European yields higher at the beginning of the month, but a hold from the ECB saw German Bunds fall late in the month. Peripheral markets such as Italy (+0.5%) were supported by higher starting yields and narrowing spreads versus Germany (+0.1%), which helped cushion returns.
In credit markets, broader risk-on sentiment over the month saw spreads narrow, with performance largely reflecting differences in starting yields. Emerging market debt outperformed, supported by higher carry and a stable US dollar, followed by high yield and investment grade returns.
Conclusion
April was a month that defied the headlines. Geopolitical stress remained acute, the Strait of Hormuz remained severely restricted, and oil pushed above $110 a barrel. Yet renewed optimism around a potential resolution to the Middle East conflict, combined with a broadly positive earnings backdrop, propelled markets to new highs and drove a powerful risk-on rally centred on AI and the technology supply chain.
The risks remain genuinely two-sided. A timely reopening of the Strait could see energy prices fall and rate expectations ease, while a continuation of the blockade could dampen activity and entrench inflation simultaneously. In this environment, the case for a well-diversified portfolio with exposure across asset classes, geographies, and themes remains as vital as ever.