April 2026 showed us what financial markets can do with hope and a headline. A two-week ceasefire and President Trump's promise of a peace deal were enough to drive the S&P 500 to record highs above 7,000 for the first time. At the same time, the Strait of Hormuz remained effectively closed, energy prices stayed elevated, and central banks on three continents signalled that rate hikes could not be ruled out.
The TACO trade, shorthand for the belief that Trump always backs down when the economic pain becomes acute enough, powered equities higher even as the underlying disruption continued. It was a month that rewarded patience and discipline, and punished anyone who tried to second-guess it.
The headline shift
Until very recently, the question across major central banks was "when will rates be cut?" That has changed. The new question is "might rates have to rise?" UK CPI hit 3.3% in March. The Bank of England has openly modelled scenarios where inflation peaks at 6.2% in 2027. The European Central Bank has confirmed it actively debated a rate hike at its April meeting. Markets are now pricing in three ECB hikes in 2026.
This is a meaningful shift. We're entering a phase where the conventional assumption (that the post-2022 rate cycle is behind us) may not hold.
United States
April was a month of dramatic swings in the US. Markets fell sharply in the first week as Iranian retaliatory strikes raised fears of a sustained supply disruption. Then on 7 April, President Trump announced a two-week ceasefire with Iran. The S&P 500 posted one of its largest single-day gains in years, and by 15 April had closed above 7,000 for the first time. By month-end, the index was trading near 7,138.
The Federal Reserve held rates steady at 3.5“3.75% at its 29 April meeting, voting 11“1. More notable than the headline vote was the internal division: three regional Fed presidents declined to back any easing bias in the statement. It was the first time since October 1992 that four dissents of any kind were recorded at a single meeting.
The meeting was also Jerome Powell's last as Chair. His term expires on 15 May. Kevin Warsh's nomination to succeed him has been advanced by the Senate Banking Committee. Warsh is expected to chair his first FOMC meeting in June, adding another layer of uncertainty to an already complex monetary environment.
Petrol prices averaged over $4 per gallon at month-end, still around 27% above pre-war levels. Jet fuel costs have prompted airlines and delivery firms (including Amazon, FedEx and USPS) to introduce fuel surcharges. The IEA estimated that global oil supply fell by 10.1 million barrels per day in March, the largest disruption in recorded history.
United Kingdom
For British investors, April brought a partial recovery from March's losses, but the picture remains fragile. The FTSE 100 climbed from around 10,176 at the end of March, peaking near 10,500 following the ceasefire announcement before giving back some gains as the situation deteriorated. The index remains materially below its all-time closing high of 10,910 set in late February.
Energy stocks (BP and Shell in particular) have continued to outperform as Brent crude remains elevated. Banking, travel and leisure names have lagged.
The Bank of England's MPC voted 8“1 to hold Bank Rate at 3.75% at its 29 April meeting. Chief Economist Huw Pill was the sole dissenter, voting for a 25 basis-point increase to 4.0%. Several other members indicated they had actively considered voting for a hike. In the Bank's most severe scenario, with oil prices remaining above $120 per barrel, rates may need to rise above 5%.
Particularly noteworthy for long-term markets: the 10-year gilt yield rose above 5% for the first time since 2008. This reflects higher inflation expectations, political uncertainty around the government's fiscal position, and investor concern that the Bank may be forced to tighten materially. For borrowers approaching a fixed-rate renewal, this is significant. Mortgage lenders price off swap rates linked to future rate expectations, not the Bank Rate itself, meaning the April hold will not prevent fixed rates from rising further.
Europe
European markets followed a similar pattern: a sharp rally on the ceasefire announcement, followed by a retreat as the situation deteriorated. The European Central Bank held its deposit facility rate at 2.0% at its 30 April meeting in a unanimous but contested decision. President Lagarde confirmed at her press conference that the Governing Council had actively debated a rate hike.
Eurozone CPI came in at 3.0% for April, the highest since mid-2024, driven entirely by energy costs. Core inflation held at 2.2%. Eurozone GDP grew 0.8% year-on-year in Q1 2026, slowing from recent quarters and below the ECB's pre-conflict forecast.
European natural gas prices surged again in the second half of April as the ceasefire's durability came into question. The damage to Qatar's Ras Laffan LNG complex (the world's largest liquefaction facility) represents a structural deficit that will take years to repair fully.
Far East and Emerging Markets
The Trump-Xi summit, originally scheduled for late March, has been deferred to mid-May. China's growth target of 4.5“5.0% for 2026 (already the slowest projected growth since the early 1990s) looks challenging in this climate.
Japan and South Korea remain acutely exposed to the energy shock. Japan's Cabinet Office has warned that a sustained 10% increase in crude oil prices could add up to 0.3 percentage points to consumer inflation over a year. South Korea's KOSPI broke 7,000 for the first time in early May, driven by a Samsung-led AI rally.
Across South and Southeast Asia, energy-importing countries continue to face severe fiscal and inflationary pressure. Bangladesh, Pakistan and Sri Lanka are particularly exposed.
The principle that still applies
The core principle through this kind of period hasn't changed. Short-term shocks, however dramatic, have consistently rewarded those who maintained perspective and resisted the urge to react. Markets in April demonstrated that yet again: a brief two-week ceasefire announcement powered indices to record highs, even as the underlying situation continued to deteriorate.
The range of outcomes remains wide. Those outcomes include scenarios where the disruption resolves faster than feared, energy prices normalise, and the rate-hiking cycle that markets are beginning to price never fully materialises.
For most clients, the right action this month is the same as it was last month. Stay diversified. Stay invested. Review the plan against your goals, not against the headlines.
What we'll be watching
Three things will determine the shape of the next quarter. First, whether the Strait of Hormuz reopens, and how durably. Second, the Bank of England's 18 June meeting, which may be the first time since 2022 the Committee seriously contemplates a rate rise to contain an energy-driven inflation shock. Third, the rescheduled Trump-Xi summit, which will give us the clearest read on whether the US-China trade truce holds into the second half of the year.
If you would like to talk through what any of this means for your own plans, that's a conversation we are happy to have.
Sources: Federal Reserve, Bank of England, European Central Bank, IEA, OECD, FTSE Russell, S&P Global, BBC, ONS, Eurostat. Full source list available on request.