Danske Research Team reports that global equities extended gains, led by US markets, with cyclical sectors outperforming while defensive and low-volatility names lag. The VIX has fallen back below 20, and Asian equities and European futures are trading higher, suggesting risk appetite remains resilient despite ongoing geopolitical tensions.

Cyclicals lead while defensives unwind

"Equities continued higher yesterday, led by the US, and the week is increasingly shaping up as a full reversal on the equity side. We have seen pronounced cyclical outperformance, while low-vol/defensive equities have been aggressively unwound."

"With VIX now back below 20, this should serve as a yet another reminder of how markets behave in periods characterised by elevated geopolitical noise, a still-solid macro backdrop, and late-cycle exuberance. In such environments, the behavioural component becomes critical highlighting the risk of 'running after the market' when breaking news hits the screen continuously."

"Despite the strong focus on Iran, an equally important theme is unfolding beneath the surface, both for equities and for broader asset allocation, including private equity and private credit. Namely, that 'tech is no longer just tech'. Software continues to lag meaningfully and yesterday was another clear example: software was the worst-performing segment, while semiconductors outperformed sharply, by ~4pp in the US and ~7pp in Europe on the day alone."

"Zooming out, this is a continuation of a trend we highlighted months ago in our "When tech disrupts tech" editorial. Over the past nine months, hardware has been the best-performing industry in the US, while software has been the worst, leaving hardware outperforming software by ~125 percentage point (!) over the period."

"This morning, Asian equities are trading higher, European futures are pointing up, while US futures are broadly flat."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)