What to watch in the week ahead

• A deal between the US and Iran remains elusive, after President Trump rejected the latest counter-proposals from Tehran over the weekend. Investors will be hoping for signs of progress this week. Meanwhile, President Trump is scheduled to make an official visit to China to meet with President Xi Jinping.
• Results from several leading US tech firms will pave the way for the finale of the first-quarter earnings season next week, with NVIDIA due to unveil results on 20 May.
• The outlook for central bank policy will also be in focus, with a raft of US economic data releases along with speeches by a range of top officials from the Fed, ECB, and Bank of England.

Can the US and Iran make progress toward a lasting peace?

US and global stocks climbed to fresh record highs last week, on renewed optimism that the US and Iran could be close to an agreement to reopen the Strait of Hormuz. That followed news last week that the US submitted proposals to Iran for a permanent end to hostilities.

But an agreement remains elusive and risks remain elevated. President Trump over the weekend said Iran's response to the US offer was "totally unacceptable." The publicly stated negotiating positions of the two sides remain far apart. According to reporting from the Wall Street Journal, Iran's counteroffer rejected the idea of dismantling its nuclear facilities, though it did offer to dilute some of its enriched uranium stockpile and send the rest to a third country. This account was rejected as "not true" by Iran's semi-official news agency Tasnim, underlining a continued lack of clarity in talks. In addition, there were renewed signs of the fragility of the ceasefire between the US and Iran last week. US Central Command said American forces fired on Iranian targets in response to attacks on three US warships, and the UAE confirmed its air defenses had engaged Iranian missile and drone attacks.

The coming week could be pivotal. Investors will be hoping for progress toward a lasting peace. Our view is that a diplomatic solution will ultimately be reached, allowing investors to focus fully on resilient US economic growth, robust earnings, and the potential for renewed Federal Reserve rate cuts later this year. Both sides remain under pressure to conclude a deal, especially ahead of President Trump's scheduled meeting with China's President Xi Jinping later this week.

The latest setback in US-Iran negotiations pushed oil prices higher. However, S&P 500 futures were close to flat at the time of writing on Monday, and the index is now up 8.1% this year. Against this backdrop of equity market resilience, we see an opportunity for investors to rebalance portfolios from a position of strength. The recent rally has been based on an outsized contribution from large-cap technology firms, and global indices have become increasingly concentrated in a relatively small number of companies. Investors can address this potential risk by complementing exposure to market-cap-weighted indices with equal-weighted index approaches.

Will the finale to the first-quarter earnings season support the stock rally?

While the US and Iran remain at loggerheads over a deal, hopes for an agreement last week allowed investors to shift their focus back to fundamentals. Notably, investors have been encouraged by signs of resilience in the US economy, including from a strong employment report and by a robust first-quarter earnings season. The S&P 500 looks to be on track to register earnings per share growth of 17%, which would be the highest rate in four years. While much of the growth has been driven by the top tech firms, there has also been evidence of broadening. The median earnings per share beat is now at 5.6% for the first quarter—the best level since 2015.

The earnings season is now in its final stages, with about 80% of S&P 500 companies having already reported as of Friday. Applied Materials and Cisco are two of the main reporting highlights this week in an otherwise relatively quiet earnings calendar, with investors looking closely at what they say about semiconductor equipment demand, AI-related infrastructure spending, enterprise networking, and the broader capex backdrop. Their results and guidance could also offer an important read-through for NVIDIA’s earnings the following week, particularly on the durability and breadth of AI spending across the technology stack.

While the outlook for the tech sector will remain key, we believe portfolios should reflect the broadening of earnings growth. Within US equities, we continue to favor consumer discretionary, financials, health care, industrials, and utilities, and we remain constructive on AI-linked areas of the market. We also think investors should consider opportunities beyond the US for diversification. With accelerating earnings momentum and still deeply discounted valuations versus global equities, we continue to see a strong case for Asia-Pacific markets, including China, Japan, South Korea, and Australia. Finally, we advise investors to diversify within our Transformational Innovation Opportunities of Longevity, Power and resources, and AI.

Will market worries over central bank tightening fade?

One key concern for markets since the start of the US-Iran conflict has been the potential for higher energy prices to ignite a fresh burst of inflation. That caused investors to fear tighter monetary policy from top central banks, with markets pricing out several rate cuts from the Fed and looking for hikes from the European Central Bank and Bank of England.

If investors remain confident that an end is in sight to the conflict, we would expect concerns over central bank tightening to fade. Our base case is for two rate cuts from the Fed later this year. That said, we don't expect a swift pivot toward easing by the Fed even if a US-Iran deal is struck soon. Policymakers are still likely to be concerned about the potential for secondround inflation effects from energy prices—as companies seek cover to raise prices or workers are able to extract higher wage increases. That is even more true after strong US employment data on Friday, which pointed to a job creation rate of 115,000 in April, close to double the consensus forecast from economists.

The central focus for global investors will be whether a reopening of the Strait of Hormuz relieves concerns that a spike in energy prices will rekindle inflation. The outlook for US rates will also be shaped by US data on prices, the consumer, and businesses. On inflation, there is the release of the consumer price index for April, which is expected to highlight the impact of the Middle East conflict. Investors will be hoping for signs that higher energy prices are not feeding through into core inflation. Regarding the health of the US consumer, retail sales data for April should indicate that —despite headwinds to confidence—Americans continue to shop. Finally, industrial production for April should provide insights into conditions in the manufacturing sector. Meanwhile, a range of policymakers from the Fed, European Cental Bank, and Bank of England are speaking, with investors on the alert for guidance on how major central banks are viewing developments in the Middle East and their potential impact on the rate outlook.

Our view is that the rise in government bond yields during the Middle East crisis has created an opportunity for investors to lock in elevated yields. We continue to believe that markets are exaggerating the likelihood of tighter policy by the Fed, ECB, and Bank of England. For investors who have seen the equity share of their portfolio grow amid the recent rally, recent market moves offer an opportunity to rebalance toward quality bonds, to bring allocations back in line with long-term plans. Finally, worries that the Fed will not be able to cut further this year have been a key drag on gold, since this increases the opportunity cost of holding the metal. As markets price back in Fed cuts, we expect gold to hit fresh record highs toward USD 5,900 an ounce by the end of the year.