Stocks on the back foot as markets search for fresh catalysts

Derren Nathan, head of equity research at Hargreaves Lansdown, and Matt Britzman, senior equity analyst at Hargreaves Lansdown, examine a weaker start for markets as fresh US-Iran tensions revive geopolitical concerns, even as hopes remain that disruption to oil supplies may prove temporary.

Derren Nathan, head of equity research, Hargreaves Lansdown:

“Geopolitics are back at the wheel of global markets after fresh clashes between the US and Iran put Asian stocks under pressure overnight. That’s also weighing on FTSE 100 futures this morning as investors consider the recessionary risks of a prolonged conflict.

The OECD has called the Middle East disruption the dominant force in its latest economic outlook. The report paints a relatively strong backdrop, with “output boosted by strong AI-related investment, production and trade, lower tariff barriers and supportive financial and fiscal conditions.” So, while global growth forecasts for this year have been revised downwards from 3.4% to 2.8%, 2027 forecasts have been held at 3.1%. However, its prolonged disruption scenario sees pressure on both inflation and growth, with Asian energy importers likely to feel the worst of it. In this scenario, global growth is set to turn negative by the end of 2026 before recovering over the course of 2027.  

Oil traders, however, appear to be holding on to hopes that the current situation will be transient rather than permanent. Brent Crude prices are down slightly at close to $97 per barrel. While the Strait of Hormuz remains technically closed, around 10% of normal traffic volumes are still making it through. Meanwhile, President Trump has made further suggestions that a deal could be reached within days.

US stock futures are down this morning after Wall Street backed off from record highs yesterday. Most of the weakness came from big tech shares, with healthcare and consumer staples enjoying a rally as investors sought to top up on defensive positions.

Custom chip designer Broadcom saw its shares fall around 14% in after-hours trade. First quarter revenue grew by 48% to $22.19 billion, with both top and bottom-line numbers landing close analyst forecasts. Q2 revenue guidance also came in ahead of market expectations but with the stock up 38% so far this year investors clearly wanted more. Management has kept its longer-term powder dry too keeping its 2027 guidance of above $100 billion for AI chip sales unchanged despite strong progress on the ground with customers such as Meta, Alphabet, Open AI and Anthropic.”

Matt Britzman, senior equity analyst, Hargreaves Lansdown: 

“Broadcom delivered another eye-catching update, but this was a classic case of very high expectations meeting a market that wanted perfection. Revenue was broadly in line, earnings beat, and AI demand remains extremely strong, with management pointing to another sharp step-up in AI semiconductor revenue next quarter. But with the shares down around 14% in pre-market trading, investors are punishing anything that falls short of exactly what they wanted to hear. That fits with the note of caution we had already sounded to clients – Broadcom is one of the more exciting names in the AI infrastructure buildout, but it also came into results as one of the higher-risk names, and the lack of full-year guidance raise was clearly a disappointment for many.

That said, the scale of the reaction looks harsh. The underlying AI growth story still looks firmly intact, with custom chips and networking demand continuing to build, and guidance looks cautious if delivery stays on track. Assuming the after-hours pullback sticks, the earnings multiple should return to a more neutral range rather than the stretched territory seen before results, while our numbers suggest earnings estimates are still too low.”