The analyst survey we conducted last week helps explain why US equity markets have been so resilient amid the Iran conflict.
We asked our equity analysts to assume the conflict endures for more than four weeks, and oil stays above $100 for an extended period of time. We then asked them to indicate the impact to EPS from higher oil and gas prices, the revenue impact due to exposure to the Middle East, and the overall impact from knock-on effects.
Three key findings:
First, fundamental risks to the US equity market from a worsening of the conflict are concentrated in certain areas and see as low overall. Among our non-Energy analysts, 72% said that EPS impacts from higher oil and gas would be “none,” “only a little,” or “not relevant/mixed/ don’t know.” The same was true for 77% when we asked about revenue impact from the Middle East impact, and 66% when we asked about impact from knock-on effects. Does this data suggest that a worsening of the conflict doesn’t matter to US equities? No, but it does suggest that the risks are concentrated in certain areas and that in many the potential impacts are not seen as highly significant.
Second, Communication Services, Financials, Health Care, and Utilities stand out as some of the most insulated sectors from a worsening of the conflict. Almost all of our analysts in these industries replied to each of our questions regarding impact with “none,” “only a little,” or “not relevant/mixed/don’t know.” On the flip side, Consumer Staples and Materials were seen as being most impacted, though it should be noted that their answers were mostly “some/a decent amount” as opposed to “a lot” on all three of the questions that we asked.
“[The data] does suggest that the risks are concentrated in certain areas and that in many the potential impacts are not seen as highly significant.”
-Lori Calvasina, Head of U.S. Equity Strategy, RBC Capital Markets
Third, Inflation and consumer confidence/sentiment were the top knock-on effects highlighted by our analysts. Next in line were demand issues, fuel prices, supply chains and transportation costs, and various issues related to a defensive tone or risk off bent. We find it interesting that inflation and consumer confidence – two problems US equity investors and public companies have been contending with at various points in the post COVID era – have been most in focus in terms of the challenges that this crisis presents. This may speak to the idea that the ripple effects of the conflict are a worsening of ongoing problems that can be managed.
