Danske Research Team reports that equities ended last week higher, led by tech and growth, even as Iran-related risks and higher Oil prices weighed on sentiment. They note a return of negative correlation between equities and bonds, with yields rising alongside stocks. Strong earnings momentum is seen as providing upside risk despite geopolitical uncertainties.

Tech leadership and earnings support stocks

“Most equity markets finished higher on Friday across the relatively few markets that were open, again led by tech and growth.”

“One of the most notable developments last week, however, was that we are starting to see the good old negative correlation between equities and bonds returning.”

“There is no doubt that Iran, and of course the higher oil price, has been a major factor, but the very strong earnings season has also had an impact. As a result, last week ended with both higher equities and higher yields.”

“Yes, there is still potential downside risk from Iran and the conflict in the Middle East, but there is also potential upside risk in equities from the strong earnings momentum.”

“The strong earnings backdrop also means that even though equity markets are up around 6-7% year-to-date, not that many of the negative equity voices can point to valuation as the key argument, because returns primarily have been driven by positive earnings growth.”

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