Iran Conflict: Slight risk reduction after strong rebound
After 52 days, the Iran conflict seems to be entering its final phase. The stock market has already anticipated this and is trading at a new all-time high. Pinpricks around the Strait of Hormuz are being used shortly before the end of the ceasefire to strengthen negotiating positions. The combination of overbought markets, short-term euphoria, and potential stumbling blocks has led us to slightly reduce our overweight in equities.
What has changed?
Negotiations between the US and Iran, shortly before the ceasefire deadline, are characterized by further pinpricks. Although an agreement is in the interest of both parties, negotiation gains continue to be leveraged through the Strait of Hormuz on both sides. However, there is now a ceasefire between Israel and Lebanon. This indicates that our main scenario - a de-escalation of the situation - is materializing, albeit slightly later than expected.
In financial markets, stock indices are already trading at new all-time highs, and credit spreads have significantly decreased. The Nasdaq has gained for 13 consecutive trading sessions since the late March lows. The Q1 corporate earnings season has started with respectable results from US banks, although their price reactions relative to the index were negative. The same occurred with AI high-flyers ASML and TSMC.
How are the markets reacting?
|
Market
|
Price change (since Friday 27.2) |
|
Market
|
Price change (since Friday 27.2) |
|---|---|---|---|---|---|
Energy |
Oil (Brent) |
31.7% |
Rel. Losers |
Equites Korea (20.4.) |
0.1% |
Natural Gas (TTF) |
71.5% |
|
Equities Germany |
-2.3% |
|
Metals |
Gold |
-9.4% |
|
Equities basic materials |
-3.2% |
Currencies |
USD / CHF |
1.8% |
|
Bonds ITA 10y |
-2.8% |
USD / EUR |
0.5% |
|
USD / ZAR (20.4.) |
-2.9% |
|
Equities |
MSCI EM Future |
0.2% |
|
|
|
USA Future |
3.3% |
Rel. winners |
Equities Glob. Energy |
+1.7% |
|
|
Europe Future |
-3.8% |
Equities USA Nasdaq |
8.0% |
|
|
Switzerland Future |
-4.7% |
|
Equities China (16.3.) |
0.9% |
Interest rates |
US 10 Year |
+33.2 Bps. |
|
|
|
|
EUR 10 Year |
+31.7 Bps. |
|
|
|
Source: Bloomberg, in local currency, Zürcher Kantonalbank as at 20.04.2026 / 08:00
What is our assessment?
Once again, it is evident that geopolitical markets have short legs. Our equity purchase at the end of March was well-timed, though the speed of the recovery has been surprisingly high. Inflation fears, at least in the US, have subsided again, and investors are once more expecting further interest rate cuts by the US Federal Reserve. As earnings expectations have been raised again (+17% in 2026 for the MSCI World), stock markets are even cheaper today despite record highs (P/E ratio of 19 vs. 20.5 previously). After the strong rebound with high purchase volumes, stocks are now technically overbought (RSI>70). The significant increase in call option volumes also indicates euphoria. As a result, we believe the market has become more vulnerable to potential negative news. Therefore, we slightly reduced our equity overweight relative to the liquidity ratio last Friday evening.
Slight risk reduction after rapid recovery of stock markets
How is our investment strategy performing?
Our portfolios have performed very positively in April, more than offsetting the negative performance from March. Our regional equity overweight in emerging markets and our focus on the basic materials and technology sectors have paid off significantly. Stock selection, particularly in the electrification sector, was profitable in April. Our overweight in gold also contributed positively to performance. However, our positions in the yen and long-term bonds have not yet paid off. Since the beginning of the year, the majority of portfolios are now back in positive territory, both in absolute and relative terms.
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