The confrontation between Israel and Iran apparently has no end in sight – a perspective that does not seem to be causing panic in the markets.
Have you been surprised by the fact that the stock market does not fall when we heard war news? Many times he falls and recovers quickly, long before the outcome becomes clear. Let’s go deeper into this theme by considering how to precet the potential of a total war.
Minimizing geopolitical risk
Israel and Iran continue to exchange heavy attacks for the fifth consecutive day, frustrating those who expected a diplomatic advance.
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President Trump abruptly came out of the G7 summit in Canada and said he sought something “better than a ceasefire” between Israel and Iran. Before, he had said that “everyone should evacuate Tehran immediately!” Your comments increased the contradictory messages about the conflict.
But investors are dealing with geopolitical uncertainty – including turmoil on a crucial sea route – with peace of mind.
The most recent: Global markets fell after the recovery on Monday, but still negotiate just below the recent peaks. The futures of S&P 500 and NASDAQ point to a low opening. Brent, an international oil reference, remains stable above $ 74 the barrel, well below the maximums of last week.
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Markets are settling in a family standard: actions fall when geopolitical seizures arise – and then recover as risk investor appetite returns.
This happened in April 2024, when Israel and Iran exchanged attacks and caused fears of a broader regional conflict. At the time, the S&P 500 fell up to 3.1% in five negotiation sessions, according to LPL Research data, a market analysis company.
Fourteen sessions later, the reference index had already recovered completely. The S&P 500 then broke record behind a record.
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This was no exception. The Financial LPL has analyzed 25 great geopolitical episodes, since the Japanese attack to Pearl Harbor in 1941. “Total falls around these events have been quite limited,” wrote Jeff Buchbinder, chief LPL action strategist in a search note on Monday. (Complete recoveries usually “take only a few weeks to a few months,” he added.)
Deutsche Bank analysts have come to a similar conclusion: “Geopolitics usually don’t matter much for long-term market performance,” wrote Henry Allen, a market strategist, in a statement on Monday.
Investors seem to bet that the latest attacks will not harm global energy markets. The worst scenario would be Israel to cause significant damage to Iran’s energy infrastructure, a major oil exporter. Tehran would rectalize the traffic of oil tankers through the Strait of Ormuz, a vital passage to world oil transportation.
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So far, there are no signs of that.
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