Summary
1. Operation Epic Failure – The Strait of Hormuz remains vastly closed. While the US might have won the war in terms of traditional warfare, they most likely lost it from a geopolitical point of view
2. Strait of Broken Dreams– It is possible that the Strait’s flow remains partially limited, causing oil prices to carry a prolonged geopolitical premium. Companies would face a sustained cost increase with diminishing capacity to absorb expenses through profit margins. Economic growth should decelerate but not collapse.
3. Reassessing EBITDA in the US– Despite the headwinds to growth from the conflict in the Middle East, S&P 500 earnings expectations continue to rise. IT sector valuations have corrected meaningfully. We see increasing value in the sector as it should be better isolated from slowing growth due to structural drivers.
4. Reassessing EBITDA in Europe– Consensus earnings estimates for European indices remain steady at the index level, driven by upgrades in the energy sector. We see reasons to worry given disappointing economic data and greater vulnerability of profits compared to the US due to a higher dependence on energy imports.
5. Sector update– Globally, we keep a preference for those market segments supported by fiscal spending such as infrastructure, industrials or metals & mining necessary for renewables and (electronic) defence. Healthcare also has a good potential, especially innovative segments such as biotech, where new M&A activity has been announced.
6. Healthcare getting in shape? –We provide a deep dive into the healthcare sector and discuss investment opportunities.