Trump says Iran war "close to over" amid hopes for more negotiations
Investing.com -- European stocks are positioned for a sharp rebound following the U.S.-Iran ceasefire, with Barclays saying that heavy hedge fund de-risking and positive seasonal trends could fuel a powerful short squeeze, though the bank warned that the oil surge will leave lasting damage to growth and inflation.
Barclays analyst Magesh Kumar Chandrasekaran said the ceasefire "removes the worst-case scenario, at least for now," opening the door to further de-escalation. He argued that continued de-escalation remains the "most rational outcome," as Trump faces mounting political and economic pressure to wind down the conflict, while Iran needs to preserve its oil revenues.
Markets had been bracing for a binary outcome as headlines shifted daily, and Chandrasekaran noted that equities could have fallen significantly more had the conflict escalated into a full-blown war.
A sustained oil shock was never fully priced in, the analyst said, pointing out that long-only (LO) positioning, valuations, and earnings expectations were nowhere near capitulation levels.
With CTA and hedge fund exposure having fallen sharply, sentiment bearish, and April seasonality historically favorable, Chandrasekaran said "stocks may be prone to a powerful short squeeze and beta rally" in the near term.
Still, he stressed that the oil surge will not fully reverse quickly, given damage to energy infrastructure and an uncertain endgame to the conflict. GDP estimates are already being revised lower, and rate expectations have been sharply repriced higher.
Barclays cut its below-consensus forecast for European full-year 2026 earnings growth to 6% from 8%, assuming oil averages $85 for the year, though an average of $100 or above would push earnings growth toward flat.
Valuations also offer little cushion, with price-to-earnings multiples remaining above historical averages despite having come off year-to-date highs. Even so, Chandrasekaran said that corporate fundamentals remain solid and that bonds are not particularly attractive given rising fiscal imbalances and renewed inflation risk.
On sector positioning, the analyst said cyclicals and rate-sensitive plays are likely to see near-term relief. Longer term, he believes the conflict reinforces the case for Europe to rebuild strategic autonomy, tilting its preference toward Industrials, Materials, and Technology.
Chandrasekaran remains cautious on the consumer and prefers Banks over Insurance and Diversified Financials. Regionally, he sees Europe, emerging markets, and Japan as better positioned for a short squeeze in the near term.