European stocks tumbled from record highs after the US bombed Iran for a second day. Iran retaliated against regional US allies, threatening a lasting peace deal. But Barclays' top equity strategist says investors should ignore the noise and focus on what really moves markets: company profits.
Cau's message is simple: don't panic. "I think we are trying not to overreact too much to headlines," he said in an interview Wednesday. He believes the recent spike in volatility - sharp price swings - is a temporary reaction, not the start of a lasting downturn.
The strategist points out that oil prices dropped quickly after the initial surge. He called the decline "too much too fast," suggesting the market already priced in the risk of a wider conflict. For Cau, the core story remains the same: earnings are what push stock prices higher or lower over time. "Our core positioning is still very much driven by earnings," he said.
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Think of the market like a car that hits a pothole - the bump feels real, but the engine (earnings) keeps running. If you swerve into a ditch because of one bump, you miss the road ahead. Cau advises keeping your portfolio steady.
Cau anticipates that market turbulence will persist throughout the summer months. The Middle East conflict could still cause sudden jolts. But he believes the odds of a full-blown war that sends oil prices into a sustained surge are low. "Prospects for de-escalation" should keep a lid on crude, he says.
Companies that keep delivering strong earnings growth will win back investor confidence, even if headlines are scary. Cau recommends diversifying away from crowded technology stocks and into sectors that benefit from investment spending - like industrials or energy infrastructure.
The takeaway: don't let short-term fear override long-term strategy. Earnings, not explosions, decide the direction of stocks.
Cau's advice comes as many investors question whether to cut risk or double down on defensive bets. He says the clearest signal will come from quarterly reports, not from military briefings. Patience, not panic, is the right move.
These airstrikes followed an earlier round of bombing that had already raised tensions in the region. Iran's retaliation against US allies added to fears of a broader conflict, yet crude markets quickly stabilized after an initial spike. That pattern reinforces Cau's view that unless oil sustains a long-term climb, the broader equity trend remains tied to corporate fundamentals rather than Middle Eastern geopolitics.
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