Equity markets ended last week higher, led by technology and growth shares, despite Iran-related tensions and higher oil prices weighing on sentiment. Markets also saw equities and bond yields rise at the same time.
A negative correlation between equities and bonds was reported to be returning, after a period when they had tended to move together. The week finished with higher share prices alongside higher yields.
Earnings Strength Driving Market Gains
Earnings season was described as very strong and as a key driver of the recent gains. Geopolitical risks linked to Iran and the wider Middle East were described as a source of potential downside.
Equity markets were reported to be up around 6–7% year-to-date, with returns said to be driven mainly by positive earnings growth rather than valuation changes. The piece notes it was produced using an AI tool and reviewed by an editor.
With strong first-quarter earnings providing a solid foundation, we should consider bullish strategies on equities. Recent reports show that over 80% of S&P 500 companies have surpassed their Q1 2026 earnings per share estimates, lending credibility to this rally. This suggests buying call options on tech-heavy indices could be a sound move for the coming weeks.
The persistent tensions in the Middle East mean we must remain cautious about potential shocks. WTI crude oil has pushed past $95 a barrel, its highest level since the flare-up we saw back in late 2025. Buying out-of-the-money call options on energy ETFs could serve as an effective hedge against a sudden escalation.
Balancing Equity Bond Exposure
We’re seeing a return to the classic negative correlation between stocks and bonds, a strong risk-on signal. As the 10-year Treasury yield hovers near 4.8%, this trend suggests traders could consider pairing a long equity position with a short bond position. This might involve buying put options on a long-duration bond fund like TLT.
The strong earnings momentum is acting as a support level for the market, which may dampen overall volatility. With the VIX settling back below 15, selling cash-secured puts or put credit spreads on robust companies that have already reported strong results could be a viable strategy. This approach allows us to collect premium while betting that the earnings backdrop will prevent a sharp downturn.
