Since the beginning of the year, the S&P 500 has gained nearly 10%, the Nasdaq 100 approximately 19%, and the STOXX 600 around 8%.
Yet, the war is having a tangible economic impact. Energy shocks can cause inflation to rise as quickly as it recedes, but major central banks nonetheless appear to be heading towards further rate hikes in June or later this year. Even in the event of a lasting short-term ceasefire, neither energy flows nor oil prices are expected to return to normal immediately.
And while the conversation is dominated by agreements and ceasefires, core issues remain unresolved - particularly regarding uranium enrichment - suggesting that uncertainties could become entrenched, even after a de-escalation. It is worth recalling that when Donald Trump declared war on Iran, he promised the end of the regime and the impossibility of Iran completing its nuclear program. Three months later, it should be noted that Iran has shown more resilience than anticipated.
In this context, the central banks of Japan, the United Kingdom, the Eurozone, and the United States have all pivoted their communication towards one or even several rate hikes this year. The outcome of the war and the actual extent of its inflationary impact will determine the pace of this tightening.
At first glance, investors seem to be turning a blind eye and a deaf ear to the deteriorating macroeconomic backdrop. However, this optimism is not necessarily irrational. It is primarily supported by solid earnings, particularly in the United States.
The first-quarter earnings season has been very favorable for American companies. S&P 500 companies recorded their strongest earnings growth since 2021, when comparisons were made against 2020. Consequently, earnings forecasts for 2026 have been revised upwards, both for the Mag7, now expected at 34.9% compared to 24.3% on March 31, and for the rest of the index, expected at 17.9% compared to 14.7% two months ago.
The core of the movement remains, evidently, artificial intelligence. Beneficiaries of AI infrastructure are estimated to account for nearly half of the S&P 500's earnings growth, according to Goldman Sachs analysts. Capital expenditures by hyperscalers continue to rise and are estimated at approximately 750 billion dollars this year.
The question of the return on these investments remains central. It will determine whether such a pace can be justified in the coming years. But for now, the entire value chain is benefiting. Most of this spending is still to come, and the valuation ratios of these players do not appear particularly delusional.
In Europe, the dynamics are different. It should be noted that the rise of the STOXX 600 was largely built before the war. Since the beginning of March, the index has only risen by about 2%. This performance remains respectable, especially since the earnings season was more than decent, largely thanks to energy stocks.
However, the STOXX 600 does not benefit from the same concentration of AI megacaps as the S&P 500 or the Nasdaq. Furthermore, the European economy has been more heavily impacted by rising energy and raw material costs, which makes the ECB more inclined than the Fed to act on rates during the June meeting.
European optimism is therefore less robust than across the Atlantic. In Europe, the market is instead supporting the idea of less stretched valuations, decent earnings, and the hope that the worst has been avoided.
Finally, in this bullish but highly concentrated market configuration, one can easily feel frustrated and have the impression of missing out on the market's yield, particularly for "value stock-pickers" whose objective is long-term. It is worth remembering that it is often wiser to stay the course and not change strategy in the absence of personal reasons.
