SGFX Market Watch: Will equities break into a rally once the U.S.-Iran conflict ends?

The equities market showed strong gains on Wednesday suggesting that the stock market has something to show investors in terms of gains. All U.S. stock indexes---the S&P500, Russell 2000, NASDAQ and Dow Jones reported gains ranging from 1.24% to 2.08%. Recent earnings reports show the majority of revenues are being raked in by Tech and AI firms. 

Tech sector leads the pack

Tech stocks are leading the rally with the following companies showing the highest gains over a 24-hour period:

• SMCI: +24.5%
• NVDA: +5.68%
• INTC: +4.46%
• AMD: +18.64%
• GOOGL: +2.47%

Tech companies are now betting heavy on the AI wave, but there are a few troubling signs present in the sector, primarily due to the increase in capital expenditures for infrastrucuture development but with no clear idea of where future cash flows will come from. From a sector perspective, tech ETFs was leading the market with a growth of 2.66%. 

Earnings reports by SMCI, Palantir, and AMD---companies that are considered market leaders in the AI sector---reported strong topline revenues.

Hyperscalers and AI infrastructure firms are relying on ARR (Annualized recurring revenues) metrics to show growth, indicating that a lot of capital has been shifted towards a sector with a high innovation component. Similar to the dot-com bubble, it is unclear as to which firms will gain the most with the AI bet and which firms will be weeded out from the market. Heavy investment continues. Pure-play AI companies are not the only ones benefitting. Silicon Valley tech companies are raking in share growth from the AI boom while mantaining strong growth across their established business segments. 

Oil crude hovers around $100 mark

Oil continues to hover around the $100 mark, indicating no signs of a cooldown as the supply of crude now hinges on the successful close of negotiations between U.S. and Iran. Countries are now earmarking oil supplies for local market to prevent rising energy costs from creeping into transportation. Australia plans to spend a total of $7 billion to mantain an oil stockpile, which is estimated to last for 50 days.

• WTI Crude: $92.82
• Brent crude: $98.89
• Murban crude: $95.09

Value ETFs outpace quality ETFs in current market

From a economy-perspective, emerging markets showed the most promise with the relevant ETF growing by 2.99%. In times of market downturn, value stocks often take preference from bargain investors due to their low P/E ratios which suggest they are undervalued. Quality ETFs are known for having a regular cash flow are bought for their consistent earnings over a set timeline of 10 to 20 years. Momentum ETFs---geared towards companies indicating huge promise---also showed substantial growth. 

• Value ETFs: +1.98%
• Quality ETFs: +1.22%
• Momentum ETFs: +2.78%

Safe haven metals also showed promise, with the more volatile silver leading the market. 

• Gold: +3.05%
• Silver: +6.40%

Final outlook

The market appears optimistic, driven by hopes that the U.S.-Iran conflict will end soon. Equities showed up with robust growth on Wednesday, although the increase in value ETFs indicates that investors could be bargain hunting for undervalued stocks more than quality ETFs with time-tested fundamentals. Despite current geopolitical tensions, investors are shifting their capital and demand towards both riskier equities along with the normal allocation towards gold that happens during market uncertainty.