Summary
Barclays analysts say investor FOMO has been a primary force lifting global equities to new highs. The bank notes that while major indices have recovered to around pre-war levels following a ceasefire announcement, oil prices and bond yields continue to send a more guarded signal about how the conflict may evolve. Barclays highlights the U.S. and technology sectors as the engines of the rebound, and reiterates that its strategy of patience and hedging has performed well through the period of geopolitical uncertainty.
Full analysis
In a recent note, analyst Emmanuel Cau wrote that "FOMO has lifted equities to new highs," a description Barclays uses to explain the recent stretch of market strength. Cau emphasised the resilience equities have shown "against adversity," noting that a ceasefire announcement helped bring major indices back to, or above, pre-war levels.
Barclays said the U.S. and technology sectors now lead the rebound, underpinning the bank's preference for American stocks rather than their European counterparts. The bank pointed to early first-quarter earnings in Europe as signaling consumer strain, a factor supporting its relative preference.
The firm reiterated its playbook of "hold your nerves and hedges," which Barclays says has worked through the conflict. The bank has previously argued that geopolitical shocks "typically end up as good buying opportunities."
At the same time, Cau warned that markets may already be pricing in substantial hope for a definitive improvement. He noted that both oil prices and bond yields "convey a more cautious message about the war endgame." That caution is reinforced by ongoing disruptions in the Strait of Hormuz, which Barclays said means the economic costs of the conflict remain unresolved.
Barclays observed that "It does feel to us that the 'easy' de-escalation gains are behind us," adding that further advances in equities may depend on confirmation from oil and rate markets that the conflict is truly easing.
Positioning in markets continues to be an important factor. Barclays had earlier highlighted that CTA and hedge fund de-risking could trigger a "powerful short-squeeze and beta rally." While some of that effect has already occurred, the bank noted many risk-controlled funds have not yet re-risked, leaving them in a position of chasing the rebound.
After meeting clients this week, Barclays said it was "pretty evident that FOMO prevails," with most investors preferring to remain invested because "equities want to go up, no matter what."
Key points
- Investor fear of missing out is a major driver behind equities reaching new highs, according to Barclays.
- U.S. and technology sectors are leading the market recovery, supporting the bank's preference for American stocks over European peers impacted by early earnings showing consumer strain.
- Market positioning - including de-risking by CTAs and hedge funds followed by potential re-risking - has amplified moves and remains a critical factor in the rebound.
Risks and uncertainties
- Oil prices and bond yields send a cautious signal about the ultimate trajectory of the conflict - a factor that could limit further equity gains. (Impact: energy, fixed income, equities)
- Disruptions in the Strait of Hormuz continue, leaving the economic costs of the conflict unresolved and posing upside risks to energy market volatility. (Impact: energy, shipping, global trade)
- Many risk-controlled funds have yet to re-risk, meaning flows could reverse or accelerate price action depending on positioning shifts. (Impact: equities, hedge funds, systematic strategies)