In the latest Weekly, I argued that even if the 2025 Israel-Iran war lives up to the billing — which is to say forever alters the course of regional and even global history — the near-term read across for financial assets, and particularly equities, is probably limited.
Although there’s a straightforward transmission mechanism from the conflict to markets — oil prices — it’s very difficult to draw any sort of line from the bombs to corporate bottom lines, let alone a straight one.
Stocks, I suggested Sunday, should be largely unaffected. That was borne out Monday in a decent session on Wall Street where equities were bid despite another wave of Israel airstrikes on the Iranian capital including the Quds headquarters and the state broadcaster.
As discussed here innumerable times over the years, stocks generally ignore geopolitics unless there’s a glaring reason not to which, again, means a clear and present danger to corporate profits. That said, scary headlines can elicit fleeting bouts of risk-off behavior. The table below from Deutsche Bank shows the typical dip for US equities in and around geopolitical shocks is 6%.
It generally takes a little over three weeks for the index to find a bottom (17 sessions) and the same to retrace losses.
If you ask the bank’s Parag Thatte and Binky Chadha, the odds of a dramatic, sustained selloff driven solely by events in the Middle East are perhaps even lower than the history of geopolitical selloffs (which, again, are typically shallow and short-lived) would suggest.
“In the present context, equity positioning is already underweight (28%ile), and a -6% selloff would need it to fall all the way to the bottom of its usual range,” they wrote.
The figure above gives you some visual context for that 28%ile figure.
The most obvious catalyst for a panic is a prospective Iranian attempt to disrupt maritime traffic through the Strait of Hormuz. Deutsche Bank reckons that in a worst case scenario where the Strait’s closed and Israel goes after Iran’s oil, crude could rally back near the March 2022 highs.
For what it’s worth, I think that’s far-fetched for one simple reason: In a scenario where the regime’s only card left to play is closing the Strait, there won’t be anyone left to play it.
Anyway, Deutsche Bank on Monday said just one thing’s clear: The geopolitical risk table shown above will get “dusted off” time and again going forward given an “increasingly complex global security environment.”
I am getting the feeling that the US will join in the war, by dropping the MOP which is delivered by B52 or B2. Trump can’t stand being sidelined, wants to finally score a “win”, why not drop a couple MOPs and take credit for saving the world from nuclear Armaggedon. Might seem like a clean, low cost, high bang for buck thing to him.
Entirely my speculation.
He could even launch some new NFTs of him flying the bomber shirtless with his six pack and 24 inch pythons on full display to celebrate the occasion.
He’ll do that after he figures out that his peace talks won’t get him a Nobel Prize.
There are lots of MOP acronyms around; I am assuming from context you mean what we used to call bunker busters, or some more modern equivalent?
MOP = Massive Ordnance Penetrator or GBU57, the 30,000 lb bunker buster bomb. I think there are six or so, can only be delivered by B52/B2 (I guess if one has total air supremacy, a C5 could be modified). Supposedly penetrates 61 meters. Fordow’s key part is supposedly 90 meters underground. But the MOP’s “specifications” are probably understated, and they could hit the same spot repeatedly, maybe with some smaller bunker busters in between to blast away debris.
“I am getting the feeling that the US will join in the war, by dropping the MOP which is delivered by B52 or B2”
Yeah, that’s my sense too. I think the discussion over the past 48 hours was around the US taking out Fordo and then Israel assassinating Khamenei.
No telling what was decided, but I bet that was the discussion.
Chatter of Trump leaving G7 early, war room activated, more F22/F35 and tankers deployed to ME – if true, someone needs to get on Hegseth’s Signal chat and find out what’s going on, or just ask his hairdresser.
Hey, let’s be fair – he only includes immediate family and possibly some mistresses (although that may include his hairdresser).
If USA could control all Iranian export terminals then US would gain a substantial strategic advantage over Chyyna. They could control all exports from there since China’s survival depends on Iranian and Russian oil. That’s the real prize for US in all this, and now it’s there for the taking.
Trump today “We now have complete and total control of the skies over Iran”. Ever looking for credit, and Israel will be happy to let him have it. Sidling quickly toward overt involvement.
Trump will put troops on the ground then republicans will blame democrats for any and all problems when democrats have to clean up the mess that will be left behind in Iran.
My guess is that Trump doesn’t want to put US boots on the ground until the region is “pacified”, then US Marines can pull security for the Grand Gaza Resort construction works. MAGA is at heart isolationist, Trump promised no foreign wars, and he is a wheeler-dealer not a warrior. That said, if he thinks there is a low-risk way to be a “strongman” and flag-wrap, who knows? He surely realizes that his “wins” column to date is empty, now Israel has all but gift-wrapped one for him (as he might see it).
Trump today “We are not seeking a ceasefire. We are seeking total victory — and that means Iran will not have nuclear weapons.”
And “They [Iran] want to come, even to the White House. But it’s a little late for that. They should’ve agreed to a deal before Israel began its operation.”