Latest news with #GlenviewTrust
Business Times
10 hours ago
- Business
- Business Times
Israel vs Iran: Navigating a new regime of geopolitical risk
ISRAEL'S 'pre-emptive' strikes directly against Iran on Jun 13 represents a meaningful escalation in what had been Israel's ongoing battle against primarily Iranian proxies. It now represents a direct confrontation between regional powers in the Middle East, drawing a red line which Israel has not crossed previously in its long-running conflict. Following Russia's 2022 invasion of Ukraine, we analysed geopolitical conflicts since World War II as categorised by the Glenview Trust, an investment adviser. Major power conflicts (US-Soviet primarily) and short-lived conflicts between 'mismatched adversaries' proved limited in their impact on US equity returns. In contrast, more prolonged conflicts (such as the Russia-Ukraine war that began in 2022) generated more headwinds for US equity markets in both their initial stages as well as over the year after they started. Most impactful: energy market disruptions Regional conflicts which result in energy market disruption – notably Iraq's 1990 invasion of Kuwait and Russia's 2022 invasion of Ukraine – have been among the most impactful and prolonged regional cross-border conflicts based on our analysis. Thus, while the humanitarian costs of such conflicts are paramount, for investors, the prospect of spillover to global energy flows poses the most imminent risk to global capital markets, in our view. With press reports indicating that Israel has attacked Iranian refineries and storage capacity as well as its Pars natural gas field, BCA Research suggests that these facilities are primarily for domestic Iranian use rather than for export. This is consistent with growing signs of Israel's intent to foment domestic instability and 'regime change' in Iran, rather than – for now – to disrupt Iran's energy exports and potentially roil global energy markets. Despite this and in light of the recent US strikes on Iranian nuclear sites, global energy prices have begun to factor in the prospect of more sustained disruption. Prices have increased not only in spot markets, but also in futures markets as far as 12 months out. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up In contrast, the 2019 Iranian strikes on Saudi energy infrastructure proved temporary in their impact on global oil supply. There was limited effect on six and 12-month oil futures prices in the immediate aftermath of the attacks. Admittedly, the June moves in crude prices remain short of the market pricing following both the 1990 Iraqi invasion of Kuwait as well as the 2022 Russian invasion of Ukraine, which resulted in prolonged disruption in global energy flows, leaving risk for markets should further escalation emerge. It is important to recognise that both the 1990 and 2022 energy market shocks were met by releases from the US' Strategic Petroleum Reserves that mitigated the longevity of the supply shocks. In 2022-23, the US released more than 300 million barrels of crude from its 650 million barrel stockpile, helping to bring down prices in the aftermath of the Russian invasion and ensuing sanctions. However, having only recently begun to restock and with only 400 million barrels in storage, it is unclear if the US could provide yet another comparable supply offset to a global oil supply shock, should the direct Israel-Iran conflict spur one. Risks of an oil supply shock We see two key risks to such a shock. First, should Israel's strategies evolve and it moves to strike Iran's primary energy export terminals at Kharg Island, this could directly impact Iran's 1.5 million to two million barrels of crude exports – a meaningful, but potentially a replaceable amount in the 100 million barrel per day global market. However, much like Russia's response to European efforts to limit Russian energy exports in the aftermath of Russia's 2022 Ukraine invasion, Iran may seek to weaponise global energy prices, either in response to an Israeli move against Iran's oil terminals by moving to disrupt or even close the movement of the nearly 20 million barrels of supply through the Persian Gulf bottleneck in the Straits of Hormuz. Such a volume would not be quickly replaceable globally. The second risk involves a shift in Iranian calculus. With Israel having struck Iran's nuclear facilities with more traditional 'bunker-busting' munitions, Iran has seen damage to its nuclear supply chain according to the International Atomic Energy Agency. Should Iran's leadership perceive a weakening or should the recent follow-on US strikes use more advanced munitions to further degrade the capabilities of Iranian nuclear deterrence, Iran may turn pro-actively to Russia's 2022 approach. In this instance, it would seek to impose – at a minimum – 2022-style costs on global and western economies, in the hopes that the US and European countries can rein in what appears to be currently unconstrained Israeli efforts at regime change. Economically, we estimate that the recent rises in energy prices – following the initial stages of the conflict – pose only modest risk to current global inflation trajectories. However, current levels of global crude prices means we have seen the trough in US inflation momentum – which Patrice Gautry, Union Bancaire Privee's global chief economist, had been anticipating since early 2025. Inflation catalysts Looking ahead, however, the battle against inflation globally, which many had hoped would be won in 2025, would face potentially three catalysts for higher prices: US President Donald Trump's tariffs; broadening fiscal policy stimulus in the US, Europe and potentially China; and the prospect for a global energy supply shock on the horizon. Beyond this, though the recent escalations in the Israel-Iran and US-Iran conflict are worrisome in themselves, investors should also recognise that a growing range of events – including India-Pakistan and Russia-Ukraine tension – have crossed red lines that previously constrained both sides in long-running conflicts. They likely represent a growing series of events presaging a regime of elevated geopolitical volatility. That such events are occurring with greater frequency may indicate that the global powers – US, Russia and China – are either no longer willing or, more troubling, unable to constrain their surrogates at maintaining the historical status quo in these regional conflicts. This suggests that investors should expect nations involved in such regional conflagrations to embark on new and disruptive journeys to establish new equilibria. For financial market participants, it suggests that the periodic spikes in volatility seen in equity and bond markets are part of this new equilibrium. This requires a proactive risk management approach as a core part of investors' portfolio allocations. The writer is group chief strategist at Union Bancaire Privee, a private bank and wealth management firm
Forbes
19-04-2025
- Business
- Forbes
Earnings Season Kicks Into Gear While Tariffs Dominate Markets
Within the S&P 500, 32 companies reported earnings last week, heavily emphasizing bank earnings. 71% of S&P 500 firms reported better-than-expected earnings for the quarter. The pace of the first-quarter earnings season picks up this week, with 121 S&P 500 companies scheduled to report, marking the second busiest week of the reporting season. S&P 500 Earnings Season Glenview Trust, FactSet, Bloomberg The financial sector contributed most positively to last week's earnings growth improvement, while downward revisions to the technology sector offset the improvement. According to FactSet data, Goldman Sachs (GS) and Bank of America (BAC) were the most significant contributors to the increase in earnings for the financial sector, which rose to 6.1% from 4.5%. Combining actual results with consensus estimates for companies yet to report, the S&P 500's blended earnings growth rate for the quarter is at 7.2% year-over-year, equal to the expectations at the end of the quarter. Notably, the calendar year 2025 expected earnings and sales growth rates have faded as concerns about earnings and sales have increased due to the increased tariffs. S&P 500 Earnings Summary Glenview Trust, FactSet Tariff worries weighed on stocks with a 1.5% decline last week. After this week's pullback, the S&P 500 sits 14% below its mid-February high. The Magnificent 7, consisting of Microsoft (MSFT), Meta Platforms (META), (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), underperformed last week. The group remains in bear market territory at 26.5% below the mid-December all-time high. Market Returns Glenview Trust, Bloomberg Much was made of the yield on the 10-year US Treasury rising instead of falling during the tariff-related stock weakness in the previous week. The typical doomsayers came out in force to predict some new apocalypse, but several less frightening factors seemed to be at play. Last week, the 10-year Treasury yield was back to behaving more typically, with yields falling during the stock market weakness. Most of the decline in yields was from a decrease in the real, after-inflation yield demanded by investors, which reversed some of the increase from the previous week. This means investors are demanding less compensation for owning US Treasuries. Usually, this happens when expectations for economic growth decrease and investors are more interested in safety versus risk assets like stocks during these periods. 10-Year US Treasury Note: Yield Decomposition Glenview Trust, Bloomberg Recently, there has also been some gnashing of teeth about the US dollar's depreciation against other currencies. This caused the alarmists to spread worries about the US dollar falling out of favor as the global reserve currency. Indeed, the tariffs or falling US yields could result in some rebalancing within currency reserves, but any dethroning of the king dollar remains a minuscule probability. The fact is that there is currently no suitable replacement for the US dollar. This does not mean the US should abuse its status, but overwrought concerns are not yet warranted. A longer-term history of the dollar shows that it has been weaker than its current level most of the time since 1999! US Dollar Woes? Glenview Trust, Bloomberg Because these companies are critical drivers of earnings growth, a significant percentage of the S&P 500's market capitalization, and are currently in a bear market, the Magnificent 7 remains the group to watch this earnings season. According to FactSet, the Magnificent 7's earnings are expected to grow 14.8% year-over-year versus 7.2% for the rest of the S&P 500. The blended earnings growth rate of the S&P 500 excluding the Magnificent 7 is 5.1%. Two of the Magnificent 7 are scheduled to report results this week: Tesla (TSLA) on Tuesday and Alphabet (GOOGL) on Thursday. Magnificent 7: Q1 Estimated Earnings Growth Glenview Trust, Bloomberg Beyond the Magnificent 7, the second busiest week of reporting season has a plethora of notable companies scheduled, including 3M (MMM), Boeing (BA), ServiceNow (NOW), Merck (MRK), Procter & Gamble (PG), and PepsiCo (PEP). According to FactSet data, Goldman Sachs (GS) and Bank of America (BAC) were the most significant contributors to the increase in earnings for the financial sector, which rose to 6.1% from 4.5%. The healthcare sector is benefiting from easy comparisons for Bristol Myers Squibb (BMY) and Gilead Sciences (GILD), which are both expected to swing from losses in the same quarter last year to profits this quarter. The previous losses were due to the accounting treatment of pharma company acquisitions. If these two companies are excluded, the earnings growth rate for healthcare would be 3.6% according to FactSet. The energy sector is predicted to show the most significant decline in year-over-year earnings due to lower oil prices. Earnings By Sector Glenview Trust, FactSet Sales growth is closely tied to nominal GDP growth, which combines after-inflation economic growth (real GDP) with inflation. At this early point in the earnings season, sales growth at 4.3% has slightly undershot expectations. Consistent with the earnings picture, once the distortions from the healthcare sector's accounting are removed, the technology sector is expected to provide the most robust revenue growth. Sales Growth By Sector Glenview Trust, FactSet With relatively few top-tier economic releases this week, markets are likely to be dominated by earnings and politics. Markets remain very attuned to newsflow around the tariffs, since the size and duration of the tariffs should be positively correlated with the extent of economic growth headwind. Actual economic data has remained relatively resilient despite the tariff storm. On the other hand, soft data from surveys shows the reasons for the consternation about the economic outlook. For example, consumer sentiment readings have plunged. While this plunge does not guarantee an impending recession, it points to at least some economic softness if the 2022 period is a proper corollary. Consumer Sentiment Glenview Trust, Bloomberg Consumer sentiment remains very dependent on the political party of those surveyed. Just as the opposite was the case under President Biden in 2022, Democratic sentiment has plunged relative to Republicans under President Trump. Consumer Sentiment By Political Party Glenview Trust, Bloomberg This week's earnings reports should provide insight into additional sectors and two of the Magnificent 7. With the tariff overhang and growing concerns about the resilience of the artificial intelligence wave, forward earnings guidance from management will be watched even more closely. Consensus earnings growth estimates for the calendar year 2025 earnings have been reduced, even though the first quarter's earnings have arrived as expected thus far. Generally, at 14% off their highs, stocks expect these tariffs to be temporary and a passing headwind for earnings. This expectation could be valid, but there could be more downside if elevated tariffs are viewed as more permanent and likely to send the global economy into recession. Upside could come from significant trade deals that lessen the headwinds or a pivot from the administration away from tariffs. The short-term forecast for stocks seems even more impossible to predict than ever, but the long-term outlook is almost certainly not at risk. Stocks have outperformed cash, bonds, and inflation by a wide margin over the long term despite many setbacks, many much scarier than tariffs or recession.
