As Stocks Await Middle East Resolution, High-Conviction Areas Remain
Equity markets are adjusting to a more uncertain world where geopolitics, inflation risks and AI disruption have converged. S&P 500 earnings expectations have jumped, with AI’s momentum resilient, while valuations have tumbled as the Iran war reverberates. Until the Middle East conflict resolves and energy markets stabilize, markets will likely remain volatile, with capital discipline and adaptability being key.
In large-cap active core, investors should keep their options open, because factor and style rotations are becoming more frequent. Many value stocks are anchored in hard assets and shorter-duration cash flows, with more immediate, reliable earnings visibility. Sustainable dividend growers have outperformed many classic inflation hedges over time, especially when inflation retreats. Long-term trends offer many thematic avenues, and an opportunity set that intersects with traditional growth and value. Higher-quality, lower-beta names are typically more resilient in market pullbacks.
International developed markets offer competitive earnings growth compared with the US: their markets are less concentrated, and many stocks still trade at a discount. In emerging markets, opportunity has often knocked throughout history—when markets have been buffeted by extreme fear (Display), strong returns have typically followed.
