Global Equities Hit Record Highs as Economic Strength and Earnings Overpower Oil Fears

How MSCI ACWI and the IBEX 35 Marched to New Peaks on Earnings and Cheaper Oil

World stock markets are on a record-breaking run, shrugging off the geopolitical tensions that drove Brent crude to $100 a barrel only two weeks ago. From New York to Madrid, the MSCI All Country World Index—the broadest gauge of global equities—has scaled fresh all-time highs, while Europe’s major bourses continue to set records of their own. The IBEX 35 closed above the psychologically important 20,000-point mark again on Tuesday, lifted by financial heavyweights Bankinter and Santander.

The catalyst is a sharp reversal in oil prices. Brent slipped back below $80 a barrel after the US president signalled an imminent deal to reopen the Strait of Hormuz, a crucial maritime chokepoint that had been effectively blocked. A full reopening would cut energy costs for companies and consumers alike, and markets are already pricing in part of that relief. The premier crude benchmark is now 21% below the peak it reached earlier in the crisis.

Just as important, the latest earnings season has delivered decisively better numbers than expected. In Europe, net profits for companies in the MSCI Europe index have jumped 15.1% on average—the largest increase since 2022—despite higher raw material costs and elevated bond yields. Economic growth is providing a tailwind too: eurozone GDP expanded 0.6% in July, beating forecasts.

American corporate results are even more striking. With nearly 90% of reporting firms surpassing analyst expectations, FactSet data now show projected S&P 500 earnings growth accelerating from 38% to 47.4%. If that figure holds, it would be the fastest year-on-year profit expansion since the second quarter of 2021. The Bloomberg Intelligence team summarized the mood by noting that “equities don’t need oil to keep falling; the biggest support comes from fundamentals.”

Beneath the Records: Europe’s Profit Revival, America’s Broadening Gains, and the Hormuz Signal

Europe’s Earnings Spring – and Why It Matters for Sentiment

The 15.1% leap in net income for MSCI Europe constituents—beating even the generous consensus—marks a turning point after two years of anaemic growth. Mohit Kumar, chief European economist at Jefferies, points out that “as oil returns to the $75–$80 range, markets can refocus on fundamentals, which remain robust.” He also highlights that investor positioning is “very clean,” meaning few crowded trades that could amplify a sell-off. This healthy set-up, combined with abundant system liquidity, has turned the early-July correction into a buying opportunity.

The strength is broad-based rather than confined to a few sectors. Spanish banks, for example, have been prime beneficiaries of the risk-on shift, with Bankinter and Santander leading the IBEX’s advance. Yet the macro picture is not flawless: eurozone manufacturing PMIs for July came in below expectations, and analysts like Javier Cabrera of XTB caution that the IBEX 35 still faces “significant risks” if inflation reignites. The rally is psychologically important—the 20,000 level on the IBEX reinforces confidence—but it remains vulnerable to negative data surprises.

America’s Profit Engine Broadens Out

The S&P 500 earnings story is turning into one of expanding breadth. UBS Global Wealth Management notes that profit growth is now spreading to a larger number of companies, diluting the market’s previous heavy dependence on a handful of mega-cap technology names. Investors are becoming more selective about where AI-related value is being created, but the overall earnings trajectory is robust. FactSet analysts emphasise that a 47.4% final growth rate would be the strongest since the post-pandemic rebound. This broadening not only validates the record highs but also offers fund managers fresh opportunities beyond the obvious AI plays.

The Oil Valve and the Hormuz Signal

The single biggest mood-shift has come from the oil market. Brent’s collapse from triple-digit territory has relieved both inflation and rate-hike anxieties. Behind the move are concrete diplomatic signals: US Treasury Secretary Scott Bessent told CNBC a Strait of Hormuz reopening was “imminent,” and President Donald Trump predicted a deal “tomorrow or the day after.” Even a partial reopening would ease the energy supply bottleneck that had threatened to push economies back toward stagflation. Crude’s 21% correction is not fully priced into corporate cost structures yet, but it is already being reflected in bond markets and equity valuations.

Bonds Catch a Breath, but Central Banks Loom

The easing of energy-driven inflation fears has allowed government bond yields to retreat. The 30-year US Treasury yield, which spiked to levels not seen since 2007 after the Fed held rates steady, has slipped below 5.2%. French 10-year government bond yields have dipped back under the psychological 4% threshold. These moves reduce the discount rate applied to future corporate earnings, directly supporting equity multiples. Yet the calm is fragile. The annual Jackson Hole symposium at the end of August will be scoured for any hint of a policy pivot. Minneapolis Fed President Neel Kashkari—who previously advocated a rate increase—is again pushing for gradual hikes, while Bank of America still expects three more rate rises before year-end. Any surprise hawkishness would quickly push yields back up and test the equity rally’s foundations.

Navigating Peak Markets: The Oil-Bond-Fed Triangle That Will Test the Bulls

For investors facing equity markets at all-time highs, the narrative is encouraging but not risk-free. Here are the concrete signposts that will determine whether the rally can persist:

• Brent crude’s price floor. A sustained hold below $80 would keep inflation expectations subdued and allow central banks to maintain a steady hand. A renewed climb toward $100, especially if the Hormuz diplomatic track falters, would immediately revive fears of tighter monetary policy and compress equity valuations.
• Jackson Hole rhetoric. Any shift in tone from Fed Chair Kevin Warsh or signals that rate hikes remain firmly on the table could reverse the recent bond rally. With the market already pricing in a soft landing, a hawkish surprise would likely trigger a swift repricing of risk assets.
• Eurozone PMI follow-through. The weak July manufacturing data is a yellow flag. If August figures fail to recover, concerns about an economic downturn will intensify, hitting cyclical sectors particularly hard—and testing the IBEX’s ability to hold above 20,000.
• Earnings breadth versus concentration. The broadening of profit growth beyond megacap tech is a powerful support for the rally. Monitor how many sectors drive the S&P 500’s upward revisions in the remaining weeks of the reporting season. A re-concentration into a handful of names would increase fragility.
• Bond yield thresholds. Keep a close watch on the 30-year US yield near 5.2% and the 10-year French yield around 4%. A break above those levels, even on mildly hawkish central bank comments, could trigger a rotation out of equities and into fixed income, reversing the current liquidity-driven momentum.