Investing.com -- Global equity markets hit fresh highs this week on hopes of a U.S.-Iran peace deal, but Barclays strategist Emmanuel Cau warned that a broader and sustained rally remains contingent on the Strait of Hormuz reopening and participation extending beyond an increasingly stretched semiconductors trade.

"The semis trade is arguably starting to look extended, so wider market breadth and a continued melt-up in equities are contingent on tangible progress regarding the reopening of the Strait of Hormuz," Cau wrote in a note published Thursday.

Barclays acknowledged the supportive backdrop, with fear of missing out remaining strong, rising money supply providing a liquidity tailwind, and first-quarter earnings comfortably beating estimates, "owing largely to strength in AI/Tech names."

The expectation that the U.S. administration is incentivized to secure a swift resolution ahead of a potential Xi-Trump meeting next week has further reinforced what Cau called the market's "de-escalation bias."

However, the Strait of Hormuz remains closed, and Barclays cautioned that the energy shock has so far been absorbed primarily through aggressive inventory drawdowns.

Even so, the bank said these buffers are eroding fast, with the risk of demand destruction rising incrementally, adding that "the clock is ticking."

If a peace deal does materialize, Barclays believes European equities would be the tactical beneficiary, given their sharp underperformance since the war began, with consumer-exposed and rate-sensitive stocks seen as the most likely to rebound.

Strategically, however, Barclays maintained its preference for the U.S., Japan, and emerging markets over Europe.