CSC has released a research report indicating that the recovery trade observed since the beginning of the year has been moderately reversed, with safe-haven demand increasing. U.S. Treasuries and precious metals led the gains, while crude oil also received some support. Risk assets such as U.S. equities and copper performed modestly. Geopolitical risks, particularly the U.S.-Iran conflict, served as a core catalyst. Additionally, weaker-than-expected U.S. economic data, the invalidation of IEEPA tariffs, skepticism toward AI putting pressure on the technology sector, and renewed concerns over private credit due to a British financial institution's bankruptcy have periodically dampened risk appetite.
Looking ahead to March, major asset classes showed signs of rebalancing in February. Previously underperforming assets like U.S. Treasuries and crude oil rebounded, while gold and silver saw volatility normalize. Valuation pressures on U.S. tech stocks eased. Barring major events, markets are expected to consolidate. The U.S.-Iran situation remains a new source of volatility. Short-term opportunities exist in crude oil, where market pricing does not fully reflect tail risks related to U.S.-Iran tensions, and in gold, which may see delayed catalysts following geopolitical disturbances. U.S. tech stocks are also recommended as a contrarian opportunity, as significant valuation pressures have already eased, suggesting strong rebound potential once geopolitical tensions subside.
Key views from CSC are summarized as follows:
1. Review of Major Assets in February: Rebalancing Amid Geopolitical Disruptions The recovery trade seen early in the year was partially reversed as safe-haven demand rose. U.S. Treasuries and precious metals outperformed, while crude oil gained modest support. Risk assets like U.S. equities and copper delivered average returns. Geopolitical tensions, especially between the U.S. and Iran, were a major driver. Other factors, including soft U.S. data, the invalidation of IEEPA tariffs, AI-related skepticism weighing on tech stocks, and private credit concerns triggered by a U.K. financial institution's collapse, also temporarily suppressed risk appetite.
2. Key Macro Narratives - U.S.-Iran tensions: Escalating rhetoric from both sides has challenged expectations of a quick resolution, leading to a spike in oil prices and declines in Asia-Pacific equities. - Invalidation of IEEPA tariffs: While having limited short-term economic impact, this decision reflects institutional constraints, reducing the risk of extreme policies from the Trump administration and benefiting previously credibility-damaged assets like U.S. Treasuries and the dollar. - Moderate economic data and renewed banking sector concerns: These have tempered recovery expectations while supporting expectations of interest rate cuts. - Persistent AI skepticism: Questions around capital expenditure, software ecosystems, and employment impacts have led to a combination of upward earnings revisions and compressed forward valuations for U.S. tech stocks.
3. March Outlook for Major Assets: Consolidation After Volatility - Overall trend: Major assets showed rebalancing in February, with laggards like U.S. Treasuries and crude oil catching up, gold and silver volatility stabilizing, and U.S. tech valuation pressures easing. Without major catalysts, markets may consolidate. However, U.S.-Iran tensions introduce new volatility. Market concerns over extreme scenarios have risen, with the upcoming weekend serving as a critical observation window. If no clear de-escalation signals emerge, volatility may increase, warranting a moderately defensive strategy. Key events to monitor include the persistence of U.S.-Iran conflict, Federal Reserve meetings, Trump's visit to China, and post-Lunar New Year industrial demand in China, particularly for copper. - Opportunity highlights: Crude oil offers a short-term play as tail risks from U.S.-Iran tensions are under-priced. Gold, having seen limited gains so far, may experience delayed catalysts following geopolitical disturbances. U.S. tech stocks present a contrarian opportunity with substantial valuation pressure already released, suggesting high elasticity once geopolitical conditions ease.
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