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The war in the Middle East is dominating headlines and financial markets alike. However, new geopolitical risks are being counterbalanced by a degree of economic stabilisation. “In the United States and Europe, the economic outlook is beginning to brighten, which should support securities prices,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. “Nevertheless, the war remains the major factor of uncertainty.”

Global financial markets are currently caught between a noticeable economic stabilisation and rising geopolitical risks. “In particular, the military conflict involving the United States, Israel and Iran has once again sharpened risk perceptions in the markets, although it has not fully undermined the ongoing recovery in the major economies,” Fischer explains. At the same time, he emphasises: “Should the war with Iran persist for a longer period and significantly disrupt key energy supply chains, this could have tangible negative repercussions for growth, inflation and consequently for global financial markets.”

During the first quarter, economic developments in the United States proved more resilient than had been expected at the end of 2025. Purchasing Managers’ Indices for both manufacturing and services remain in expansionary territory, while new orders and hard industrial data point to a renewed increase in demand. In addition, financial conditions have improved and fiscal stimulus is expected through higher tax refunds under the “One Big Beautiful Bill” in the second quarter. “This combination of ample liquidity, firmer leading indicators and government spending is supporting economic momentum, even though growth will probably slow in the second half of the year,” Fischer notes. As a result, the outlook for the second quarter of 2026 suggests a neutral economic picture with moderate stabilisation. However, the Atlanta Fed’s GDPNow indicator, a real-time estimate of the US economy, highlights the uncertainty: since the outbreak of the Iran conflict at the end of February, growth expectations have fallen by around 100 basis points to 2.1 per cent.

Excluding the current escalation, the situation in Europe had improved slightly prior to the outbreak of the war. Positive economic surprises, improved sentiment indicators and more relaxed financial conditions suggest that the stabilisation previously driven mainly by government spending programmes is now beginning to feed through to the real economy. “Germany in particular could benefit over the course of the year from special funds and investment programmes,” Fischer explains. Although the latest hard economic data have not yet shown a pronounced upturn, much indicates that the cyclical trough was reached in the first quarter. With overall inflation of around 1.9 per cent, the euro area is currently slightly below the ECB’s target, leaving the monetary policy environment broadly predictable and largely neutral.

Recent developments, however, illustrate how dynamic and at the same time fragile the current situation is – and they reveal Europe’s vulnerability regarding energy imports. Persistently high oil prices would not only push up inflation expectations in Europe but would also cloud growth prospects. This intensifies the dilemma for monetary policy: interest rate increases are moving further into the focus of the markets, are being priced in earlier, and are initially leading to a further flattening of the yield curve, driven mainly by movements at the short end. “Once the first oil tankers are again able to pass reliably through the Strait of Hormuz, market attention should quickly return to the underlying fundamental drivers. In Europe, the stabilising effects of continued supportive fiscal policy and significantly improved financing conditions are then likely to prevail,” Fischer says.

What does this mean for investors and equity markets? In the United States, recent geopolitical tensions, higher inflation expectations and rising yields have weighed on markets in the short term. “However, if the situation eases, macroeconomic factors should once again come to the fore,” Fischer is convinced. Given a neutral economic assessment alongside high valuations, US equities should overall be regarded as neutral over three- and twelve-month horizons – supported by solid earnings and margin expectations for 2026/27, not least due to efficiency gains and investments, for example in the field of artificial intelligence.

European equities also remain characterised by uncertainty in the short term. Geopolitical tensions, trade policy risks and only moderate growth rates initially point to rather sideways market developments. In the medium term, however, the picture appears more constructive: fiscal stimulus, comparatively moderate valuations by international standards and a low real interest rate environment could increasingly support the earnings development of European companies. Cyclical value segments in particular – such as industrial and financial stocks, as well as export-oriented companies – are likely to benefit from a gradual economic recovery.

Fischer’s conclusion: “Overall, apart from the war, financial markets are operating in an environment of moderate stabilisation, in which liquidity and fiscal impulses provide support, while geopolitical risks and structural uncertainties continue to limit clear upward trends for the time being.”