War in Iran, markets highly reactive. Inflation risk is also keeping the Fed cautious on rate cuts

The conflict in Iran has heightened market sensitivity to geopolitical shocks and short-term inflation risks. In the months ahead, equity returns will be driven by corporate results.

by Filippo Garbarino, manager of the Lemanik Global Equity Opportunities fund

The war in Iran and rising energy prices are forcing the Fed to be more cautious on rate cuts; nevertheless, the equity market remains promising, provided investors focus on companies with solid fundamentals.

2026 opened with significant volatility across equity sectors and broad rotations between them, particularly as US equity markets questioned the future returns on the hefty investments made by the main cloud service providers. However, the economy has proved relatively resilient, supported by robust consumer demand and solid corporate results. From a macroeconomic standpoint, recent data point to a slowdown in the US labor market, with hiring and layoffs both contained. The Fed is now facing a more complex backdrop: while labor-market conditions have normalized, the war in Iran and the resulting rise in energy prices have increased the risk of higher inflation, making the pace of further easing more uncertain and likely more cautious than previously expected.

The outbreak of the war with Iran has added a new layer of uncertainty, mainly because of rising oil prices and disruptions to maritime traffic in the Strait of Hormuz. Although the recent ceasefire has eased some of the immediate pressure on energy markets, the conflict has heightened market reactivity to geopolitical shocks and short-term inflationary risks. That said, we still see the current environment as generally supportive for equity markets. The strength of corporate earnings, together with continued share buyback activity, should keep providing a floor for market performance in the months ahead, although we expect returns to be increasingly driven by corporate results rather than by multiple expansion.

In particular, priority should be given to the strongest companies from a bottom-up fundamentals perspective, able to deliver better-than-market revenues, EBITDA and profitability metrics (margins, ROIC and ROE), with low leverage and above-average earnings quality. At sector level, our portfolio favours financials, industrials, chemicals and consumer discretionary goods, while we hold no banks, technology hardware, consumer staples, pharmaceuticals, real estate, energy or utilities, and we are underweight technology. Among the companies that meet our selection criteria are HCA, Old Dominion, Hilton and Broadcom.