Federated Hermes: Weekly Markets Wrap Up 7 May 2026
In this week’s markets wrap, our investment teams analyse ceasefire developments in the Middle East, changing dynamics in bond markets, and the crosscurrents shaping equity opportunities.
Damian McIntrye, Head of Multi-Asset Solutions Team at Federated Hermes
Ceasefire Signals Lift Markets…for now
We’ve seen progress a few times since the end of March toward some form of ceasefire, but we view this latest development as a continuation of that trend rather than a decisive breakthrough. It’s clearly an improvement, and it helps explain why markets have reacted warmly. That said, the path forward still looks uneven – structural tightness in the oil market hasn’t gone away, and supply risks in the region remain highly sensitive to headlines.
We do think a ceasefire is coming at some point, but timing and durability are far from certain. One of the challenges is that negotiations appear to get closest to resolution just before they unravel, which can trigger renewed volatility. So, while the markets may welcome recent signals of progress this week, our concern is that this optimism could prove fragile.
Karen Manna, Portfolio Manager for Fixed Income at Federated Hermes
Bond Markets are Changing the Classic Narrative
US Treasurys are typically treated as the market’s safe harbor when uncertainty rises. That script, however, has not played out in the face of escalating tensions in the Middle East. Instead of a classic risk‑off bid into Treasurys, the dominant response has been 'inflation on', not 'risk off'.
Disruptions to energy supply from the Middle East pushed spot energy prices sharply higher. Energy costs feed into nearly everything, complicating an inflation picture that was already improving only slowly. The prospect of inflation settling comfortably back toward the Fed’s 2% target began to look less certain, forcing markets to reconsider the idea of imminent rate cuts.
The resulting trade appeared quickly at the front end of the curve, where yields moved higher as expectations recalibrated toward a Fed that may be on hold for longer. Further out the curve, yields have risen as well, though to a lesser degree, reflecting inflation uncertainty, fiscal dynamics, and geopolitical risk, with persistent deficits reinforcing a higher for longer mindset.
Rather than reflexively rotating into Treasurys, the market has broadened its toolkit.
Jessica Henry, Investment Director for Equities at Federated Hermes Limited
Navigating Crosscurrents
Markets have been shaped by an unusually broad range of cross currents this year. From AI innovation driving disruption and perceived AI winners & losers, to heightened geopolitical uncertainty, conflict in the Middle East, and rapidly evolving interest rate and inflation expectations.
Against this backdrop, we remain firmly focused on the long-term and continue to see compelling opportunities across several areas of the market.
We are excited about emerging markets, where favourable demographics, rising incomes and exposure to attractive end-markets continue to support long-term growth. Despite these structural tailwinds, valuations remain compelling relative to developed markets, presenting an attractive risk-reward opportunity.
We also see value in capital-intensive businesses. Expectations for many of these businesses remain muted, yet fundamentals are improving as industry activity stabilises. In an environment where the long term AI disruption risk to asset light business models is still uncertain, exposure to asset heavy companies (who benefit from tangible assets that are harder to displace) can also provide useful diversification and resilience.
Finally, commodity sensitive stocks are benefiting from a supportive backdrop of higher commodity prices driven by geopolitical conflict, supply constraints and longer term structural shifts in demand. Recent disruptions to global supply chains have underscored the importance of physical capacity and reliable production, while the energy transition continues to underpin demand for key industrial materials. As a result, parts of the market are experiencing improved pricing dynamics and stronger cash flow generation.