Markets too quick to price in Israel-Iran de-escalation

General market commentary

US equities rebounded on Monday, recovering from the prior week’s turbulence driven by heightened geopolitical tensions between Israel and Iran. Despite Friday’s sharp sell-off, which saw the S&P 500 fall over 1% and oil prices surge more than 7%, markets regained composure as investors responded to signs of limited disruption to global energy supplies. Growth-oriented segments led the gains, with technology, consumer discretionary, and communication services all advancing over 1%. The Nasdaq Composite rose by 1.5%, the S&P 500 climbed 0.9%, and the Dow Jones gained 0.8%, with communication services and technology outperforming while utilities lagged. Bond yields edged higher, with the 10-year Treasury yield closing around 4.46%, reflecting a cautious optimism ahead of this week’s key economic events.

Attention now turns to consumer spending data and the upcoming Federal Reserve meeting. Investors await May’s retail sales figures and the conclusion of the June FOMC meeting, where rates are widely expected to remain unchanged. Nonetheless, all eyes will be on the Fed’s updated economic projections, with markets looking for any revision to the outlook for rate cuts in 2025. Despite a slowdown in spending, the US consumer remains resilient, supported by solid labour market conditions and healthy household balance sheets. Meanwhile, global equities have also performed well in 2025, particularly in developed and emerging markets, buoyed by fiscal support and a weaker US dollar. Although non-US markets have outperformed so far this year, we believe longer-term opportunities remain most compelling in US large- and mid-cap equities.

Latest market and economic update

Asian equities traded in a flat-to-lower range on Tuesday, as geopolitical tensions and anticipation of key central bank decisions kept investor sentiment subdued. While Japanese shares advanced on the back of the Bank of Japan’s dovish stance, most other major markets, including China, Hong Kong, and India, saw modest declines, with only South Korea and Singapore posting gains.

US futures traded lower during Asian hours, with S&P 500 futures down 0.4% as geopolitical tensions escalated following President Trump’s call for the evacuation of Tehran. Despite a strong Wall Street session overnight, the after-hours pullback reflected investor caution ahead of the Federal Reserve’s interest rate decision and ongoing conflict in the Middle East.

European markets saw a modest rebound yesterday, with the STOXX 600 rising 0.3% as investors showed cautious optimism after a five-day losing streak. Among key movers, Kering, surged 10.2% on CEO speculation, while Renault fell 2.6%, and the healthcare sector dipped amid ongoing central bank and global economic uncertainty.

The US dollar firmed slightly on Tuesday in a cautious trading session, supported by safe-haven demand amid escalating Middle East tensions and ahead of a key Federal Reserve policy decision. The euro was little changed against the greenback, holding near $1.1561, as markets remained largely rangebound while awaiting further clarity on the Fed’s rate outlook.

Oil prices edged higher in Asian trade on Tuesday this morning following a warning from U.S. President Trump urging the evacuation of Tehran, fuelling concerns over potential supply disruptions amid the ongoing Israel-Iran conflict. However, gains were sharply pared after U.S. officials ruled out direct involvement, while mixed Chinese economic data and conflicting reports on a possible ceasefire continued to weigh on sentiment.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Meta will introduce advertising to WhatsApp for the first time, placing ads in the Updates tab alongside channel subscriptions and promoted channels, while keeping personal chats encrypted. Oppenheimer raised its price target for Meta to $775 from $665, citing better advertising conditions, stronger revenue forecasts, and investment in AI and infrastructure, including the $14.3 billion Scale AI acquisition.

OpenAI is reportedly considering accusing Microsoft, its key investor and cloud partner, of anticompetitive behaviour, potentially prompting a regulatory review and public campaign, according to the Wall Street Journal. Tensions have emerged over OpenAI’s corporate restructuring and Microsoft’s future stake, with negotiations stalled despite ongoing talks and joint assurances of continued collaboration.

SoftBank has raised $4.8 billion by selling 21.5 million T-Mobile shares at $224 each, about 3% below Monday’s closing price of $230.99. Despite the sale, the Japanese conglomerate remains T-Mobile’s second-largest shareholder behind Deutsche Telekom and had previously gained additional shares through conditions tied to the Sprint-T-Mobile merger deal.

Eli Lilly is in advanced talks to acquire gene editing startup Verve Therapeutics for up to $1.3 billion, including nearly $1 billion upfront and $300 million in milestone payments. The deal, which could be announced this week if negotiations proceed smoothly, aims to bolster Eli Lilly’s pipeline with Verve’s gene therapy targeting high cholesterol.

Lennar’s second-quarter revenue of $8.38 billion exceeded Wall Street estimates, boosted by incentives such as mortgage rate buydowns that helped maintain sales despite higher interest rates. However, its average sales price fell to $389,000, leading to a near halving of profit per share to $1.81, while the company expects to deliver up to 23,000 homes in the third quarter.

Polish national carrier LOT has placed its largest-ever order for 40 Airbus A220 jets, with options for 44 more, marking a shift from non-European suppliers and reinforcing closer political and economic ties with France. The deal, worth up to $3.5 billion, signals a reset in Franco-Polish relations and boosts the A220 programme amid plans for increased production.

Roku has announced an exclusive partnership with Amazon Ads to create the largest authenticated Connected TV footprint in the U.S., giving advertisers access to around 80 million CTV households via Amazon’s demand-side platform. The deal enables more precise targeting and measurement across streaming platforms, with early tests showing improved reach and reduced ad frequency.

Deutsche Bank has upgraded Cisco Systems from Hold to Buy and raised its price target from $65 to $73, citing improved growth visibility and rising AI-driven demand. The bank highlighted strong earnings prospects, a growing share of subscription revenue, and Cisco’s supply chain resilience as key factors supporting sustained growth and margin stability.

Upcoming data and events

Key economic data due today includes core retail sales and overall retail sales figures in the U.S., offering fresh insight into consumer spending trends and the broader state of the economy. Additionally, French infrastructure group Vinci is set to report its latest sales and revenue results after the market close.

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