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The escalation in the Middle East has temporarily unsettled stock markets, but beyond the headlines, fundamental and structural trends remain decisive for investors. “While US and European equity markets are broadly neutral over the coming months, other themes are moving more strongly into focus: market broadening, style rotation and long-term sector trends,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM.

The recent military escalation has led in the United States to rising energy prices, higher inflation expectations, increasing government bond yields and even potential interest rate hikes by central banks still within this year – with a corresponding negative reaction in equity markets. If the conflict eases, the medium-term picture is likely to normalise and the focus may shift back towards macroeconomic data and corporate earnings.

Over a three- and twelve-month horizon, US equities remain broadly neutral overall. Support comes from stable financial conditions, a robust labour market and still-expansive monetary policy. “However, US equities remain expensive,” Fischer warns. The very high valuation level limits upside potential and increases vulnerability to setbacks. At the same time, valuations are supported by expectations of strong corporate earnings. Efficiency gains, innovation and the investment cycle – particularly in the field of artificial intelligence – make solid earnings and margin growth possible.

Since the end of 2025, Fischer observes increasing market breadth, with momentum for industrials, materials and small-cap stocks, while software has come under pressure. At the same time, a rotation from growth to value is underway, which could intensify further in the second quarter. Artificial intelligence remains structurally important but is moving from a phase of broad enthusiasm to a more differentiated phase with clear winners and losers. “It is therefore increasingly important to select the right stocks,” Fischer notes. “The trend alone will not deliver performance.”

In Europe, the escalation in the Middle East has also heightened sensitivity to geopolitical risks and at the same time exposed vulnerabilities related to energy imports – which is why the market reaction here has been somewhat more negative than in the United States. Nevertheless, economic prospects had improved slightly since the start of the year prior to the escalation of the US-Iran conflict. In Germany in particular, signs of a cautious recovery driven by fiscal stimulus are increasing. “However, we are still waiting to see stronger confirmation in the hard data,” Fischer says.

Over a three-month horizon, he views European equities as neutral, as a large part of the economic stabilisation is already reflected in valuations. Political conflicts also pose risks. In the medium term, however, the outlook appears more favourable: Europe is increasingly benefiting from fiscal stimulus in Germany, Spain, Italy and parts of Eastern Europe, moderate valuation levels and relatively low real interest rates that could support rising corporate profits.

Increasing market breadth can also be observed in Europe: cyclical value sectors are already benefiting from stabilisation, and other parts of the market could follow over time. Small-cap stocks, in turn, are supported by lower interest rates.

If one looks beyond the short-term geopolitical escalation, strategic themes emerge beyond traditional country allocation. These are mainly driven by structural trends:

• Commodities: Industrial metals are benefiting from electrification, grid expansion, digitalisation and global infrastructure development. Limited supply, low inventories and strategic stockpiling by individual states support prices, while producers from resource-rich regions such as Latin America benefit from growing demand for copper or aluminium.

• Infrastructure and “smart power”: The expansion of energy infrastructure – driven by electrification, data centres and artificial intelligence – is creating rapidly rising demands for grids, storage and energy supply. In Europe, ambitions for economic and energy independence add further momentum, making investments in smart grids and energy infrastructure a key investment theme.

• Financial sector: Financial stocks could benefit from improving framework conditions and more efficient capital markets. In the United States, deregulation trends are emerging, while in Europe steps towards a savings and investment union are on the EU agenda.

• Technology / AI value chain: The focus here is shifting towards areas such as robotics, automation, industrial digitalisation and AI infrastructure, which benefit directly from rising investment in productivity-enhancing technologies.

Fischer’s conclusion: “In an environment of heightened uncertainty, ambitious valuations and an increasing divide between winners and losers, active and selective allocation is becoming more important than simply participating in broad market indices.”