Why 'Sell America' is currently on hold

Investing.com -- The recent escalation of the conflict in the Middle East has pushed global markets into a risk-off mode, but analysts at Barclays say the shift has so far been orderly rather than panic-driven.

In a note to clients on Friday, Barclays strategist Emmanuel Cau said that while investors have reduced exposure to riskier assets, “the de-risking remains orderly with little evidence of broad-based panic selling so far.”

Market weakness has been concentrated outside the United States, particularly in regions that had previously outperformed and are more vulnerable to higher energy prices.

According to Barclays, “equity market weakness has been concentrated in regions like Europe, Japan, and EM,” which are more exposed to rising energy costs.

By contrast, U.S. assets have shown relative resilience, prompting investors to pause a broader shift away from American markets.

Barclays noted that “Sell America and rotation toward RoW equity markets has paused given the lower sensitivity of US assets to energy costs.”

The benchmark S&P 500 has been relatively stable despite the geopolitical shock, while volatility indicators have not surged significantly.

“S&P500 is barely down on the week and Vix hasn’t spiked much,” the analysts wrote, suggesting limited concern about the conflict’s broader market impact so far.

Barclays believes the oil price spike may ultimately prove temporary, though risks could increase if the conflict drags on.

“The longer the conflict persists, the greater stagflation risk, especially for energy-dependent regions outside the US,” the firm said.

Despite the uncertainty, Barclays added that past geopolitical shocks have often created opportunities for investors. “Past geopolitical shocks, while disruptive for markets in the near term, mostly offered good medium-term buying opportunities.”

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