Investors seek shelter from war

Key takeaways

Global stock markets suffered relatively modest losses, considering the geopolitical backdrop. But it was another tough week for government bonds and gold.

Magnificent 7 rides to the rescue
Despite a retreat by the broader market, US technology sector stocks, which had suffered a rout prior to the onset of the Iran war, now stand out as the best performing US sector since the start of hostilities, and the only one to be in positive territory so far.

The Magnificent 7 has been especially notable. Investors have treated this cohort of US mega-caps – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – as ‘safe haven’ assets thanks to their giant balance sheets and competitive ‘moats’, and the fact that they offer dollar exposure at a time when the US currency is strengthening. After falling around 6% in January and February, the Magnificent 7 has gained over 1% since the start of the war in the Middle East thanks to a classic ‘flight to quality’ by investors.

Avalanche on the high street
Last week witnessed an avalanche of over 500 mortgage products being withdrawn by UK high-street lenders, thanks to the sudden change in UK inflation and interest-rate expectations brought about by the Iran war. The last time the mortgage market saw such upheaval was in the aftermath of the Truss mini-Budget in September 2022.

Average mortgage rates are already rising, and in a sharp reversal of previous expectations, no UK interest-rate cut is now expected from the Bank of England when it meets this week, despite the latest round of anaemic UK economic data. British house price forecasts are already feeling the strain. After a brief improvement at the start of the year, sentiment cratered as oil and gas prices rose, according to the latest RICS (Royal Institution of Chartered Surveyors) survey.

The fortunes of war
Last week, the S&P 500 Index of US shares declined for a third consecutive week – to bring up its longest losing streak for a year – while the technology-heavy Nasdaq Index suffered its eighth weekly drop in nine.
With oil prices above $100 a barrel, despite the promised release of record reserves, both share and bond markets have been buffeted by fears of another inflation spiral caused by higher energy costs. Since the Iran war commenced, market expectations of two US interest-rate cuts this year have dissipated.
Meanwhile, US investors have rotated, transforming former winners into losers. At the start of 2026, smaller companies, value and cyclical stocks (those most sensitive to the economy) led the market. Since the war, defensive, growth and energy stocks have flourished with sectors such as IT services, semiconductors (chips) and software making particularly strong progress.

Market moves

• Global stock markets retreated marginally as all major regional markets suffered minor losses in the second week of the US/Israel war on Iran.
  
  
• UK shares were the top performers – they fell just 0.1%. Japanese shares were down over 2% while Pacific and emerging markets shares declined by just over 1%.
  
  
• UK government bonds (gilts) suffered further losses. US government bonds (Treasuries) also retreated slightly as did the price of gold.

What to look out for this week

• There are four central bank rate decisions this week. The Federal Reserve announces on Wednesday; the Bank of England, Bank of Japan and the European Central Bank follow suit on Thursday.

• Monday brings US manufacturing and industrial production data. Redbook numbers follow on Tuesday with Producer Price Index (PPI) and factory order numbers on Wednesday. US jobless data are due Thursday.

• The UK publishes unemployment and average earnings numbers on Thursday.

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