Remaining Tactically Neutral: elevated volatility and supply chain disruptions in the coming weeks.
We remain tactically NEUTRAL, expecting volatility to remain elevated over the coming weeks. Geopolitical tensions, potential supply chain disruptions linked to the conflict, and concerns around rising inflation and slower global growth could weigh on both market sentiment and corporate fundamentals.
At the same time, risks are not unidirectional. A better-than-expected earnings season, combined with supportive policy signals from the White House, could trigger a meaningful rebound in equity markets.
Against this backdrop, we recommend maintaining existing exposure but refraining from adding risk on market pullbacks until the macro and fundamental implications of recent geopolitical developments become clearer.
From a regional perspective, we move to a NEUTRAL stance across regions, closing our previous active positioning while awaiting further developments in the Middle East. Should geopolitical tensions persist, however, US
equities are likely to outpace the Rest of the World. The US benefits from relative energy independence and historically tends to outperform during periods of heightened risk aversion and a strengthening US dollar. By contrast, Europe and Japan appear more vulnerable, given their greater reliance on imported energy and an already weaker macroeconomic backdrop. Emerging markets may also face headwinds from a stronger greenback and tighter global financial conditions, which have historically weighed on local economies and capital flows.
From a sector perspective, we maintain a modest cyclical tilt. We remain LONG Energy, which continues to act as a hedge against geopolitical risk and inflation. We also maintain a LONG stance on Materials, despite recent weakness, as well as Semiconductors, supported by strong structural demand. We upgrade Software to LONG(from NEUTRAL). We stay NEUTRAL on Banks, downgraded from LONG following the strike on Iran, while we cut Diversified Financials to SHORT(from NEUTRAL). Within defensive sectors, Telecoms and Utilities remain our preferred picks.
Strategically, we maintain our 12-month OVERWEIGHT view on equities but keep it under review, pending further developments on the geopolitical front. The duration and intensity of the conflict will be key. The longer tensions persist - particularly if theStrait of Hormuz remains closed - the greater the potential impact on the global economy, through higher energy prices, tighter financial conditions, and weaker growth.
While consensus expects global EPS to grow by around 18% in 2026, we maintain a more cautious view and forecast growth of 12%, reflecting the potential drag from a more challenging macro backdrop.
Cosimo Recchia
Senior Equity Strategist
Investment Research
Francesco Ponzano
Junior Equity Strategist
Investment Research
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