The market is already looking beyond the war in Iran: sectors that could lead the rally
The de-escalation of the conflict between the United States and Iran could open a new window of opportunity for stock markets in the coming months. With solid corporate earnings and a US economy that continues to show resilience, sectors punished by volatility, such as semiconductors, technology, consumer discretionary, or airlines, could lead the rebound if geopolitical noise finally takes a back seat, according to Rafael Ojeda, independent analyst.
What is your outlook for the stock markets in the coming months?
The outlook for the stock market is positive. I believe that in the coming months, stock markets will rise, mainly because once the political and geopolitical noise we have had throughout the year takes a back seat, corporate earnings are really positive.
Moreover, forecasts indicate that, in general, companies will continue to maintain their guidance. Therefore, I consider that the economic situation justifies the markets rising.
The big differentiator is on the geopolitical side. That is, if we ultimately face a situation where there are steps backward in the conflict between the United States and Iran, the markets could suffer. But we have seen that the US economy is very resilient, and therefore, global economies as well.
If we believe that the United States and Iran will finally sit down to negotiate and there will be a peace agreement, which assets will benefit the most?
We are in a situation where neither can afford to lose, but neither can clearly win, because a clear victory for one would imply a defeat for the other. Therefore, this could lead to many steps forward and backward. Iran is very clear that it sets the timing, because it is fully aware that there is a 60-day framework. Mainly, because in the United States there are the midterm elections in November, which could be very damaging for Donald Trump if no agreement is reached. Therefore, I believe the probability of an agreement is very feasible, mainly because Donald Trump has no choice but to negotiate, even with fewer demands. In that scenario, I think it would be very positive.
As for the sectors that could benefit the most, in my view they would be those that have been most punished during this time. For example, the semiconductor sector or the technology sector, which have had enormous volatility. We will likely find ourselves in a scenario where they can recover much of what they have lost, at least in some cases. I would also highlight companies linked to cyclical consumption or consumer discretionary. We have seen how many people have postponed, justifiably, their purchasing decisions due to uncertainty about interest rates and the geopolitical situation.
Furthermore, the opening of the Strait of Hormuz would allow many commodities to fall in price. Therefore, companies that have been paying a premium for those commodities could clearly improve their margins. I am also thinking of airlines, which could perform better with the drop in oil prices. In general, I believe there are many sectors that would clearly benefit.
Strong movements in semiconductor-linked stocks have led some indices, such as the SOX, to historic falls. What should worry us about this situation?
What should worry us is what we discussed earlier: that there is an impasse and, above all, a setback in the negotiations between the United States and Iran. That is, an escalation of the conflict and a breakdown of the agreement that currently exists, albeit in a very incipient form, between the two countries.
That is the main problem we could face, because it would imply a step backward in all these negotiations and would clearly punish the markets.
Probably, the semiconductor sector, which has had a great run in recent years, could suffer significant declines. To recover at least part of what was gained in previous years and not lose so much money, one would have to hedge positions. That would be a rather complicated scenario.
In the scenario we have discussed, and which is probably the most feasible, the opposite would happen: the semiconductor sector could recover everything it has lost during these months.
Where are you seeing potential at a time like this?
By sector, I see clear potential in the healthcare sector in the medium and long term. I think it can perform very well, as it trades at very cheap P/E ratios. Additionally, our manager Marcos Sánchez just added to the portfolio a few sessions ago Broadcom, a semiconductor company that is absolutely a leader in its sector. Behind Nvidia, it is probably the best semiconductor company in the world.
He added it to the portfolio we have in Ursus-3 Capital Opportunities Growth SICAP because we understand that it is a company that will have a huge run in the coming sessions. It does not depend solely on artificial intelligence, but has a series of other very profitable businesses that make the value very attractive. I think it will have a great run.
Therefore, I consider the healthcare sector very interesting in the medium and long term, and the semiconductor sector, with companies like Broadcom, can also perform very well in the short and medium term.
