According to the Danske Research Team, equities closed higher on Friday, although several markets, particularly in the US, ended the week lower overall. The Nordics were highlighted as one of the strongest performing regions during the week [1]. The research notes that four main forces are currently influencing equity markets: ongoing concerns about oil around the Strait of Hormuz, the sustained buildout of AI capital expenditures, recent fears of dollar debasement, and, most importantly, exceptionally strong macroeconomic data [1].
The team emphasizes that robust macro and earnings data, as well as sector leadership from Materials over Utilities, indicate there has been no defensive rotation in the market. Materials was the best performing sector last week, while Utilities lagged, which is typically expected when macroeconomic conditions and capital expenditures are strong [1].
Volatility remains subdued, with the VIX hovering around 15.5 throughout the week and ending broadly unchanged. Despite some risks, the lack of a defensive rotation and low volatility levels underscore the resilience of equities [1].
Looking at regional performance, Asian markets were mostly lower at the start of the new week, with South Korea experiencing the greatest volatility. Meanwhile, US and European equity futures were trading close to Friday's closing levels, suggesting a steady start to the week [1].
Danske Bank concludes that, given the strength of macro and earnings data, the resilience of equities should not be underestimated [1].
CONCLUSION
Equities have demonstrated notable resilience, supported by strong macroeconomic and earnings data, with sector performance favoring Materials over Utilities. Despite some markets ending the week lower, especially in the US, the absence of a defensive rotation and low volatility levels suggest continued market stability. Investors are advised not to underestimate the current strength in equities.