WeekWatch

• US stocks rose to record highs in June, supported by a 19% drop in oil prices over the period.
• Further catalysts were strong corporate earnings updates and a widening pool of AI beneficiaries.
• US Treasury yields rose to multi-year highs during the month but subsequently eased as Iran tensions appeared to peak.

S&P registers double digit returns
 
Increasing hopes that a deal between the US and Iran might finally be reached and continued AI optimism helped push US markets to new highs last week. 

The S&P 500 has now risen for nine consecutive weeks; its longest streak since 2023. In fact, the S&P 500 is now trading at more than 10% above levels seen before the war with Iran. 

On Thursday, negotiators between the two countries reached a tentative agreement that would allow for an extended, 60-day ceasefire. However, the deal requires final sign-off, and over the weekend, Trump signalled further changes would be required before he agreed.   

While US equities seem relatively unaffected by the conflict, this doesn’t appear to be the case in all markets. Missile exchanges between the two sides on Thursday brought the FTSE 100 down, as the UK index finished the week slightly in the red. So far, the FTSE’s performance has been in marked contrast to the S&P 500. While the S&P 500 is up more than 10%, the FTSE 100 is down more than 4% over the same period. 

Clearly, the US market appears to have some advantages over its UK equivalent in the current climate. As a net energy producer, the US is more insulated than the UK from the energy shocks linked to the conflict, for example.  

Another major differentiator is the market composition. Specifically, the dominance of the tech sector in the US. Prior to the war, investors seemed to be increasingly concerned over the level of investment going into AI. These fears appear to have waned, and various tech companies have seen massive gains in recent weeks. One example is Dell, which surged more than 30% last Friday following strong results and an improving outlook for its AI server sales. 

Not everything is rosy, however, as the US is also facing inflationary pressures. Recently, Federal Reserve Governor Christopher Waller, who had previously been one of the voices pushing for lower interest rates, called for the removal of the ‘easing bias’ from the Federal Reserve’s policy statements.  

Speaking in Frankfurt in late May, he added: “That doesn't mean, however, that I think we should be considering rate increases in the near future… But I can no longer rule out rate hikes further down the road if inflation does not abate soon, and that is especially true if measures of inflation expectations, some of which have risen lately, show signs of becoming unanchored.” 

European clouds 

While this seems to rule out an imminent increase to interest rates in the US, the same is not true elsewhere. According to Reuters polling, the European Central Bank (ECB) is expected to increase interest rates by 0.25% later this month, as the economic bloc continues to struggle with the effects of weak output, low consumer confidence, and the inflationary impact of higher energy prices. 

The ECB will need to be careful when considering interest rates, however. Higher rates reduce demand, which in turn slows economic growth. Given the fact that many European economies are already struggling with anaemic growth, the central bank will be careful to not push things too far.  

The Bank of England (BoE) will face similar questions. However, the UK consumer has been shielded from some of the energy shock so far by the energy price cap. Revised on a quarterly basis, this limits the amount that gas and electricity companies can charge households for their energy. While to date the effects of the Iran war have not been fully passed through, last week Ofgem revealed the price cap will rise by 13% from 1 July. This increase will add to existing inflationary pressures, further clouding the BoE’s upcoming decisions. It is next due to meet on 18 June to decide on interest rates. 

Also revealed last week, the number of babies born in England and Wales continued to fall last year. A total of 585,396 were born in 2025, according to the Office for National Statistics, down from the 594,667 born the year before. This marked the lowest number recorded since 1977. With England and Wales already facing issues around the costs of elderly care and pensions, a falling birthrate will only add to future government fiscal problems. 

Bonds relax 

There was some good news for governments in general as bond yields relaxed across most markets for the second week in a row. This is a general reflection of the optimism that the Iran crisis may not result in sustained inflationary shocks, as tensions appear to have peaked. Of course this is liable to change, and it should be noted that while bond yields are generally below where they were two weeks ago, they remain notably above levels at the start of the year.  

Pension withdrawals on the rise

Growing numbers of people are taking money out of their pensions ahead of April 2027, when unused pots will fall into an estate for inheritance tax (IHT) purposes.

Several reports suggest that hundreds of thousands of UK pension savers are cashing out their pension pots in full, in anticipation of the proposed changes coming into force next year. Historically many savers have used pensions as a way of passing on family wealth to beneficiaries, as pensions were exempt from IHT.

But it means many people could be paying more tax than necessary. The lump sum allowance (the amount a pension saver is allowed to take tax free) is typically 25% of the pension pot, to a maximum of £268,275. Any withdrawals above this level are taxed at the individual’s marginal tax rate.

This means that withdrawing a pension in one go could push many people into higher tax bands, potentially triggering avoidable tax bills.

Government estimates suggest that bringing most unused pension wealth into scope for IHT from the 2027/28 tax year could have a noticeable impact. Around 10,500 more estates are expected to become liable for IHT, with a further 38,500 likely to pay more. On average, affected estates could see 
their IHT bill rise by around £34,000.1

IHT receipts fall in April

HMRC registered £0.7 billion in IHT receipts for April 2026, a decrease of £65 million compared with the same period last year.2

The government said the decline was largely down to exceptionally high receipts in April 2025.

Despite this short-term dip, it expects revenues to rise over the long term, driven by increased wealth transfers, higher asset values and the continued freeze in income tax thresholds until the 2030/31 tax year.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Sources

¹UK government: Inheritance Tax on pensions: liability, reporting and payment - Summary of responses – July 2025
²UK government: HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – May 2026