Equities: Energy relief drives risk-on cascade – Danske Bank

Danske Research Team describes a strong, broad-based risk-on session in equities, catalyzed by declining Oil price. They emphasize how retreating energy costs ease inflation expectations, push central bank pricing more dovish and improve confidence, while noting cyclicals led by technology outperformed, with the Nasdaq at record highs and MSCI World close to its peak, supported by robust growth and earnings.

Risk-on session led by technology

"Yesterday delivered a strong, broad-based risk-on session, with the decline in oil price acting as the catalyst for another move higher in equities. We have written extensively about this transmission mechanism recently, and the correlations and intraday moves across equities and asset classes yesterday are likely to remain defining features for much of the rest of the year."

"As oil price retreats, fears of an energy crisis heading into winter fade, inflation expectations ease, central banks are priced more dovishly and confidence improves. This cascade is currently unusually sensitive to energy, oil and developments around the Strait of Hormuz. With the underlying growth and earnings backdrop exceptionally strong, the energy situation remains the principal constraint on further market upside."

"Unsurprisingly, cyclicals outperformed decisively, led by technology. The Nasdaq reached another record high, while MSCI World moved to within 1% of its record. Technology has clearly outperformed year to date, but 2026 earnings estimates for the sector have also been revised almost 45% higher."

"By comparison, health care estimates have been cut by around 5%. Technology has therefore become cheaper this year, while health care has become more expensive, despite technology outperforming health care by almost 30%. The relative earnings impulse between the two sectors remains exceptionally powerful."

"This morning, Asia is catching up following the strong US session, European markets are also pointing higher, while the US picture is more mixed as oil edges higher again."

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