We have been proved wrong big time on risk assets specially US equities. Though we are likely not yet out of the woods with respect to geopolitics; markets could show more weakness on a renewed escalation, but we are now of the view that if one has a longer time horizon, a timeframe of 3/6/12 months, then one should be using the weakness to buy. We think the relative performance of RoW vs US should move to fresh highs in 2H. This should especially be the case when USD loses the safe haven bid, once conflict de-escalates, and on potential shift in Fed reaction function under new leadership in 2H. We still believe inflation might stay elevated but central banks may chose to see through it. Also, S&P 500 2026 EPS has continued to move higher through the conflict. Consensus estimates for S&P 500 2026 EPS growth stand at 18.4%, up from 15.4% as of end-Feb. This is a notable development - earnings momentum has not been derailed by the geopolitical shock. Earnings growth this year should be supported by solid fundamentals, with US ISM manufacturing near 3-year highs. We now see S&P 500 range to be 6900-7400 in medium term. We also believe the current setup provides an attractive entry point into EM given the light positioning and compelling valuations at 12x forward P/E - a 34% discount to DM. Eurozone and EM are more reliant on energy imports and therefore have been more vulnerable during the conflict. MSCI Eurozone has fallen 4.0% over the past six weeks, underperforming MSCI US which is down 0.8%. But with today’s announcement on SoH being open for commercial ships during the period of ceasefire, implies this underperformance might soon catch up.
