Market weakness continues to intensify moving into the second week of March, as the war in Iran shows no signs of de-escalation, coupled with mounting pressure on the business cycle from soaring oil prices to north of USD100/bbl. As mentioned in our note published last week, The markets are relatively calm…for now, equities remained relatively flat, reflected in the slow rise in downside hedges while spot levels were shy of all-time highs.
Although the risks from a further escalation are asymmetric to the downside and would undeniably justify maintaining market hedges and exposure to higher oil prices, the SX5E and SPY have reached our trigger profit-taking levels on our predominantly bearish trade ideas over the last few months (Richemond, ASML, Infineon, Santander, Inditex, BP).
In contrast to our 10 April 2025 note, where similar market stress and broader index levels prompted a shift back to a more bullish stance, we maintain our bearish bias even after locking in profits on our trade ideas. We believe the war may have crossed the point of no return, and investors will likely hesitate to rebuild long positions in the short term and will thus likely adopt a wait-and-see approach before turning actively bullish again on the market, skewing our preference to defensive sectors, or deep-value names. As markets also never go down in a straight line, we will wait for a market bounce before exploring new downside trade ideas.
Broader macro thoughts can be found in our GM Weekly Equity Views.