Barclays expects investors to shift their attention from geopolitical headlines to corporate earnings as the second-quarter reporting season begins.
Although renewed conflict between the United States and Iran has increased market volatility, the bank believes company fundamentals will ultimately determine the direction of equity markets.
Markets React to Higher Oil Prices
The latest military developments pushed crude oil prices higher while weighing on stocks and bond markets.
“Equities received more reality checks this week, with the broadening trade coming under pressure as U.S.-Iran tensions re-escalated,” Barclays strategists led by Emmanuel Cau said in a note.
The bank added that recent market positioning may have intensified the reaction following the sharp decline in oil prices seen earlier this year.
Focus Turns to Company Results
Barclays maintains that “the current fragile peace is likely to hold,” limiting the probability of a prolonged energy shock.
Instead, the bank believes the upcoming earnings season will become the market’s primary catalyst.
According to the strategists, second-quarter results will be “crucial in reconnecting price action with fundamentals” and will indicate whether equities can continue their recent advance.
While the bank expects periods of higher volatility during the summer, driven by geopolitics, artificial intelligence valuations and Federal Reserve uncertainty, it believes earnings growth will remain the dominant factor for investors.
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