For a supposedly “efficient” discounting mechanism, stocks often appear oddly oblivious, particularly to geopolitics.

If “Mr. Market” could talk, he’d surely disagree with that characterization. It’s not that stocks are unaware that the world’s a dangerous place, he’d say. Rather, it’s that unless and until there’s a clear transmission channel from a given conflict to corporate bottom lines and/or monetary policy, there’s nothing to price.

As for existential geopolitical risks — like, say, nuclear armageddon — what’s the point? If the nukes start flying, stocks will be the least of anyone’s worries.

Occasionally, though, equities do swoon or otherwise waver in the face of scary-sounding headlines, particularly when there’s weekend gap risk involved like there was two Fridays ago, ahead of Iran’s first-ever direct attack on Israel. And given the multiple channels through which the current bout of geopolitical tumult (the worst in decades) can affect the macro-policy conjuncture, and thereby rates, it’s reasonable to assess that equities could exhibit more sensitivity to geopolitical developments in 2024 than they did pre-pandemic.

So, should equity pullbacks predicated on geopolitics still be bought? Yes, according to BofA. With caveats.

“Geopolitical events with limited fundamental implications have historically offered buying opportunities,” the bank’s Ohsung Kwon wrote, in a Monday note. “History suggests that geopolitical dips should be bought, not sold.”

That’s correct. History does suggest that. But if “history” means the post-Lehman, pre-COVID era, history may not be the best guide. After all, that was a period defined by the suspension of market rules — a “state of exception,” to use the political metaphor favored by former Deutsche Bank strategist Aleksandar Kocic.

BofA’s “history” lesson dates to 2010. The market’s capacity to price risk was impaired during that period by the equivalent of martial law, whereby central banks succeeded in establishing a regime defined by “a binary option of either harvesting the carry or running a risk of gradually going out of business by resisting,” as Kocic put it in January of 2018. “Not much of a choice, really,” he quipped at the time.

Crucial to the maintenance of that regime was the persistence of low inflation, a condition that no longer holds. Indeed, the geopolitical environment is highly inflationary in 2024 which makes it more difficult for markets to persist in the notion that there’s no discernible link to macro, policy and, ultimately, discount rates and corporate bottom lines.

So, although 15 years of “history” suggests US equities recover within just three months of major geopolitical events (during which, according to BofA, peak-to-trough declines average 8%), mechanically buying the “war dip” (so to speak) in the 2020s might not be an entirely safe bet.

BofA’s Kwon conceded as much, noting that the situation in the Mideast does have the potential to become a bigger tail risk. The bank cited the Yom Kippur War, and the prospect of knock-on inflation, or even stagflation, that could accompany an oil price shock.

It’s not all about the Mideast. There’s a war going on in eastern Europe too, as it turns out. A big one. And the Kremlin wasn’t enamored on Monday with the promise of $60 billion in new aid to the country Russia’s trying to conquer (or reconquer).

“Westerners are dangerously balancing on the brink of a direct military clash between nuclear powers,” Sergei Lavrov declared, during remarks to the Moscow Nonproliferation Conference. That, he said, “is fraught with catastrophic consequences.”

Fortunately, there’s VIX calls for that. Or SPX puts. BofA’s preferred hedges.