Emma Wall, Chief Investment Strategist, Hargreaves Lansdown: “Oil – the key driver of stock and bond markets over the past week – has fallen back to below $90 a barrel, providing some relief for markets. Asian markets are in the green today, with the MSCI Asia Pacific Index up more than 3% - trading at values last seen at the beginning of February. Recent volatility has been challenging for investors, but it is worth noting that on a one-year view, investors in the region have seen an attractive return of nearly 35%.
Futures for Europe and the US are painting a more mixed picture with the expectations for FTSE 100 to open slightly down, along with the DAX and CAC in Germany and France, while Italy and Spain are in positive territory. Futures across the Pond also look positive. Before too much optimism sets in, investors should be mindful that this war is far from over, despite President Trump’s comments that it would end “soon”. Volatility is high, the VIX index was back up above 25 yesterday, and we expect these fluctuations to continue for a few weeks yet.
The key to determining longer term impact, not just for equity markets but also bond markets and indeed inflation and economic growth, will be unlocking the Strait of Hormuz, which remains practically impassable. Iran is now targeting the Strait with mines which the US, in turn, is destroying. Normality of 20% of the world’s daily oil and 25% of daily liquified gas flowing through that narrow passage feels like some way off.
Investors should remain focused on the long term, ensuring their portfolios have diversified allocations which add resilience against continued market volatility.
Private credit concerns
News that JPMorgan has downgraded a number of investments within their private credit portfolio adding to “cockroaches” concerns. Market watchers may remember it was JPM’s chief, Jamie Dimon, who remarked last year following the failure of US sub-prime lender Tricolor: “When you see one cockroach, there are probably more”. A few weeks later, five US regional banks revealed they had made a series of bad loans linked to the troubled California real estate market, sending share prices down and lawsuits up. The downgrades this week, reported in the FT, are for software companies, which have come under pressure in the public markets in recent months too – thanks to AI disruption concerns. This looks to be a pre-emptive move – a prudent reflection of the challenge the software sector faces. Private credit is an area that higher interest rates will challenge however, so – back to that oil price – monetary policy reaction to the war in Iran could add additional unwelcome pressure to the industry and investors. Quality is key here.
Oracle results, shares up 12%
Matt Britzman, senior equity analyst, Hargreaves Lansdown: “Oracle reported a strong set of results, with the key takeaway being higher revenue guidance that didn’t come with any increase in planned spending - an important sign that AI demand is starting to boost growth without pushing up costs. The earnings call backed this up, with Oracle looking like one of the more direct ways for investors to tap into the ongoing buildout of AI infrastructure. It’s a higher-risk, higher-reward stock, and effectively a leveraged play on the AI theme, which means it's the first in line to take some punishment should the AI story lose steam. For risk seekers, this year's sell-off has presented an attractive entry point, but we see better risk-adjusted opportunities elsewhere in the space.”
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