While the conflict in Iran has not officially ended, with its consequences remaining clearly visible, the market has decidedly moved on. This effectively summarizes the recent price action on the stock exchanges.
The Nasdaq's rally is the prime example. The index has just recorded 10 consecutive sessions of gains, its longest winning streak since 2021. The Nasdaq is now in positive territory this year (+2.35%).
The first fortnight of April has thus seen a trend reversal following a particularly volatile first quarter. Earlier this year, the Nasdaq suffered from a rotation toward more defensive sectors amid fears of AI-driven disruption. These concerns triggered a bloodbath in the software sector. The war in Iran exacerbated the index's decline, which ended the first quarter down 9%.
Today, the market is pricing in the end of the conflict. There is a prevailing sense that, one way or another, the situation will gradually return to normal. Above all, positive catalysts – led by AI investments – appear to remain intact. As we have noted on several occasions, analysts have not reduced their earnings estimates. When falling share prices are combined with unchanged earnings expectations, the result is a significant easing of valuations.
Historically, tech has commanded a significant premium over the rest of the market. However, valuations have collapsed in recent months. This weekend, Apollo's Chief Economist, Torsten Slok, noted that US tech valuations had returned to levels seen prior to the AI boom. It is an opportunity that some investors have clearly seized.
