Markets Look Past the Conflict

Editor’s Note

While the prior week was defined by a wait and see approach, this week shifted the focus back to company fundamentals. With no major geopolitical shifts to react to, investors moved away from headlines driven investing and focused more on individual stock performance. The main U.S. indices gained for the week, with the S&P 500 and Nasdaq extending their winning streaks and both closing at fresh record highs. However, this rally was confined to stocks, as other asset classes failed to mirror the same optimism. Brent Crude Oil finished the week at $105.33, and the FTSE 100 index (UK) and STOXX Europe 600 (Europe) both declined for the week. The weekend then brought another setback to diplomacy after Trump cancelled his envoys’ trip to Pakistan and Iran returned to the talks without a counterpart from Washington. At the same time, Israel’s fragile ceasefire with Lebanon seems to have collapsed amid a new round of attacks over the weekend.

This context matters because it highlights a ‘tale of two markets’. With U.S. equities rallying and European equities declining, it’s clear that individual stock performance has overtaken geopolitics as the primary driver of price action. Specifically, the U.S. is pulling ahead because its equity market is being led by visible earnings, proven AI demand, and superior balance sheet strength.

The week saw U.S. indices rally, but what was important is which sectors and stocks led the move. The U.S. move was driven above all by technology and, within technology, by a further broadening of the AI infrastructure trade. Intel’s earnings and guidance produced its best day in decades, pushing the Philadelphia Semiconductor Index to another record and reinforcing the argument that AI demand is now benefiting GPU companies as well as firms tied to server CPUs and the wider AI chip supply chain. This is important because it turns a market once dependent on one stock into one supported by a wider capital-spending ecosystem. Nvidia’s record close and AMD’s strong week reinforced that broadening.

This, however, was not a synchronous rally. European equities fell, with the STOXX 600 declining 2.54% and the FTSE 100 losing 0.8% as higher fuel costs and official warnings from the Bank of England on valuations weighed on sentiment. This divergence between the U.S. and Europe suggests that markets’ views on earnings could, for now, outrun the geopolitical standoff.

In the U.S., the data made the Federal Reserve’s view on the policy path more difficult to ascertain. Supplier delivery times worsened, output prices rose to their highest levels in years, jobless claims continued to point to a stable labour market, and energy costs remained high. Together, these factors make it harder for the Federal Reserve to justify cutting interest rates soon. As a result, the outlook for interest rates has become more complicated. Markets are now expecting fewer near-term rate cuts, with Reuters’ latest poll showing that the first expected Fed cut has been pushed back to late 2026. Consumer sentiment then gave the clearest warning signal, falling to a record low as households focused more on high energy prices than on ceasefire headlines.

The conflict in Iran and Lebanon remained the clearest source of market risk. The collapse of the Islamabad talks, Iran’s continued restriction of passage through the Strait of Hormuz, and Israel’s decision to resume operations against Hezbollah all lowered chances of a durable ceasefire. With Brent ending the week at $105.33, up roughly 16.5%, markets are increasingly treating the lack of a resolution as an inflation and supply-chain shock. The more confrontational stance suggests that economic pressure alone may not be enough to force a near-term diplomatic compromise.

In the U.S., policy and corporate developments pointed to a more interventionist market, in which government action is continuing to influence stock moves more directly. Trump’s opposition to a rumoured merger between American Airlines and United shows the administration’s concern over competition, while possible government support for Spirit Airlines highlighted a shift from regulation toward direct equity intervention. If the government takes a major stake in distressed companies, investors may increasingly price political decisions alongside earnings, balance sheets, and industry fundamentals. At the same time, Kevin Warsh’s confirmation as the next Federal Reserve Chair looks all but certain after the Justice Department dropped its probe into Jerome Powell.

_{^{We recommend staying selective as the AI trade broadens, rotating from names priced for perfection towards stocks trading at reasonable multiples, with durable earnings, strong balance sheets, and lower rate-cut dependence.}}

After last week’s rally, Kenyan equities lost momentum. The NSE All Share Index (NASI) closed Friday at 207.09, declining 0.50%. The NSE 20 fell to 3,589.13, reflecting a decrease of 0.48%, while the NSE 25 moved lower to 5,735.29, a decline of approximately 0.38%. However, trading activity increased substantially, with shares traded rising by about 167% and equity turnover increasing by approximately 59%. This suggests that some investors used the recent relief rally to take profits, while there were still enough buyers in the market to take up the selling. The decline therefore points to a pause in momentum, rather than a major shift in sentiment.

Domestic macro signals reinforce that caution. The Central Bank of Kenya kept its policy rate at 8.75% earlier in the month. March inflation ticked up to 4.4%, still within the target but moving in the wrong direction. We see fuel price increases as likely to have the biggest impact on Kenyan markets in the weeks ahead. In the April 15 fuel price review, EPRA set petrol at KSh 197.60 and diesel at KSh 196.63. These higher prices will gradually feed through the economy by increasing transport, production, and distribution costs. Over time, that could affect business activity, inflation expectations, and the direction of interest rates. The shilling remained stable for the week, closing at around KSh 129.33. Foreign exchange reserves stood at $13.24 billion, equal to 5.6 months of import cover, after a slight decline of 0.50%. This suggests Kenya still has some cushion against an energy shock, but that cushion is not unlimited if high fuel prices persist.

The fixed income market also shows signs of caution. The Treasury bill auction was undersubscribed for a second straight week, at 57.4% overall, yet the 91-day bill was more than 230% subscribed while demand for the 182-day and 364-day bills was weak. This shows that investors prefer shorter-term securities because they want flexibility. They are keeping their money in instruments that mature quickly while waiting to see how higher fuel prices affect inflation and future interest rate decisions.

One of the key positives from the week was the Africa Finance Corporation signing a host country agreement to establish its first regional office in Nairobi and said it plans to mobilise $2 billion in East Africa over the next three to five years. At the conference the AFC conference, Aliko Dangote backed plans for a regional refinery in Tanga that would process crude from across the East African Community. These developments reinforce Kenya’s standing as a regional financial hub and show that East Africa is trying to reduce its vulnerability to foreign challenges.

_{^{We recommend staying cautious on Kenyan equities, favouring companies with strong pricing power and limited exposure to fuel driven cost pressures, while maintaining flexibility through shorter duration fixed income instruments.}}

_{Last Week’s Review}

Last week’s single name idea in UnitedHealth (NYSE:UNH) yielded an impressive 9.33%. This performance followed solid quarterly results and a constructive outlook, as the company raised its full year guidance.

The Kenyan basket, however, was less successful, with the guided 10% allocation to Equity (NSE:EQTY), 45% to KCB (NSE:KCB) and 45% to ABSA (NSE:ABSA), producing a -1.85% loss on the week. The trade failed more because the market fell as a whole, than because the underlying thesis changed.

_{This Week’s Trade Ideas}

_{- Global Trade}

_{Meta Platforms Inc. (NASDAQ:META), Amazon.com Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL)}
This week, we are going with a mega-cap technology basket, allocated 40% to Meta, 30% to Amazon, and 30% to Apple. The main catalyst is earnings, with investors likely to focus on whether AI spending is beginning to generate clear returns. For Meta, the key variable will be management commentary around Instagram Plus, and the monetisation of its AI features. For Amazon, AWS remains the most important segment, with guidance on cloud demand and margin progression being key, with commentary around Amazon Leo likely strengthening the long-term growth narrative. For Apple, the focus will be on its earnings, early sales performance of the MacBook Neo during its first two weeks on the market, and commentary around its incoming CEO, John Ternus.

_{- Kenya Trade}

_{Equity Group Holdings (NSE:EQTY), KCB Group (NSE:KCB), Absa Bank Kenya Plc (NSE:ABSA)}
The trade remains the exact same quality-bank basket, with the same allocations. The reasoning is that Kenyan equities have slowed after last week’s rally, while higher fuel prices, cautious fixed income demand, and a more uncertain macro environment suggest that investors should remain selective. These banks remain compelling because they have resilient earnings, strong balance sheets, and trade at compelling valuations relative to their returns on equity.

Our focus this week centres on three themes.

Progress in the Middle East - The first focus is whether diplomacy produces actual results. The cancelled U.S. delegation’s trip to Pakistan, Iran’s foreign minister returning to Pakistan without a formal restart of negotiations, and renewed pressure in Lebanon will likely lead markets to open weaker. For markets to rally further, investors would need something concrete, such as easier passage through the Strait of Hormuz, or clearer signs that the Lebanon conflict is de-escalating.

Broader Earnings and Guidance - The second focus is whether strong earnings can keep supporting equities. The coming week includes the Federal Reserve’s interest rate decision, inflation readings, and earnings from mega-cap technology companies. Since this may be Jerome Powell’s final press conference as Federal Reserve Chair, markets may pay less attention than usual to his forward guidance. Earnings from companies such as Amazon and Apple will also be important because they can provide a clear view of consumer strength.

Kenya’s Fuel Price Impact - The third focus is how much higher fuel prices feed through into the Kenyan economy. April’s fuel price adjustment has raised costs for consumers, transport operators, and businesses. If this starts to push inflation higher, weigh on business activity, and push investors further towards short-term Treasury bills, Kenyan equities may struggle to rerate. However, if the shilling stays stable, reserves stop falling, and foreign investors start buying, then equities could rally this week.

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