As Labour MPs survey the damage done to their party in last week’s elections, a growing number of their ranks have come out to make their deep frustration with the Prime Minister known publicly. As of Tuesday afternoon, more than 80 are now on the record calling for Sir Keir Starmer to go.
Whether the increasing contingent of rebels can get their act together and actually commit ‘regicide’ remains to be seen. (They could do a lot worse than asking their Conservative colleagues across the floor for advice.) Still, with the government bond market watching closely, the PM’s position now seems pretty shaky.
Which is a shame, because it means that a new wrinkle has appeared on the horizon at a time when the Iran war seems to have almost entirely stopped bothering the stock market. Talking heads and think tank analysts continue to give their prognoses about what is likely to happen and when, either diplomatically or militarily, but investors reaping the rewards of an AI goldrush have increasingly given their verdict: not our problem.
This might seem surprising. Yet the recent history of stock markets does show that they tend to start rising after a dip long before the issue that caused said dip has been fully resolved. This was true last year, with tariffs; in late 2022, in the midst of the Ukraine-driven energy shock; and in 2020 with COVID, even before a vaccine had been fully developed.
Though of course it will not last indefinitely, looking at developments over the past few weeks, it’s easy to see why investors are back in such a sunny mood.
The main reason is that we are currently witnessing an historic boom in company earnings expectations. The past few weeks have seen one of the biggest upgrades to expected profits in history. This is being led mainly by the energy/resources and technology sectors, the latter powered by the increasing amounts of money pouring into artificial intelligence.
Further, much of the economic data that has emerged since the Iran war began has also been resilient. Closely watched economic surveys for the UK and China alike were both healthy on their latest readings. For the first time in years, real wages in Japan have grown for three months in a row. Industrial data for March in Germany, Spain and the US were all strongly up.
Staying on the US, retail sales growth hit a four-year high in the week ending 2 May. About twice as many jobs were created in April as analysts had expected and figures for March were revised up. Together, this made for the strongest two-month period for job growth since 2024. Ongoing claims for out-of-work benefits are now at the lowest level since 2024.
Behind the headlines, economies are still turning. Despite everything, the medium-term fundamentals continue to warrant confidence.
Unless, perhaps, your first name is “Sir Keir”…
