Update Equities: Markets show resilience amid geopolitical tensions
History indicates that (geo)political events can lead to an initial overreaction on financial markets. Yet, despite ongoing tensions between Israel and Iran, global equity markets do not seem to adopt an excessively cautious stance and have shown resilience. The current lack of extreme volatility on risky assets suggests that investors do not overestimate, at this stage, the risk of further escalation in the Middle East.
Sectors such as information technology, communication services and financials slightly outperformed since the end of last week. Conversely, defensive sectors like healthcare, utilities and consumer staples, have been a bit weaker over the period.
Regionally, market performance has been fairly uniform with European markets lagging slightly in euro terms, the European markets are slightly behind, whereas Japan has performed better.
The recent period has been painful for the solar energy sector. It has faced challenges following the release of the Senate’s budget bill draft. This draft includes a plan to phase out solar, wind and energy credits by 2028. Enphase Energy and Solar were among the worst performers in the US following those developments.
Rumours have surfaced about Amazon and Walmart potentially issuing their own stablecoins in the US. This has put pressure on Visa and Mastercard stocks as investors are questioning the potential impact such projects could have on their dominant position in the payment sector. Although it is still too early to assess the real risk, it should be noted that typically, a change in consumer behaviour is difficult and tends to occur over the long term. This means that even if these various projects succeed, the risk of a sudden disruption is quite unlikely for companies such as Visa and Mastercard. They are also investing in this field to avoid being outpaced.
In the US, Coinbase (crypto assets exchange), Estee Lauder and AMD were among the best performing companies. Meanwhile, biopharma firms like Moderna and Bristol Myers Squibb along with the solar sector underperformed. In Europe, Telecom Italia, MTU Aero Engines (aerospace), and German real estate firms such as Vonovia and TAG Immobilien have outperformed. Renault, Beiersdorf (cosmetics) and Fresenius Medical Care declined.