TLDR
- Military action against Iran by the United States created market turbulence on Monday, pushing oil higher while equity markets declined initially
- Major indices including the S&P 500 and Nasdaq reversed course and posted gains by the afternoon trading session
- Leading Wall Street analysts recommend purchasing during the downturn
- Market history indicates stocks climbed higher one year after similar events in 4 of 5 geopolitical crises dating back to 1990
- Federal Reserve interest rate reductions could provide additional market support should tensions escalate
Military strikes against Iran conducted by the United States during the weekend created immediate ripples across global financial markets when trading commenced Monday. Crude oil contracts surged, equity indices retreated, and government bond yields ticked upward as market participants digested the developments.
However, the selloff proved short-lived. By the middle of Monday’s trading session, both the S&P 500 and Nasdaq Composite had reversed into positive territory. The Dow Jones Industrial Average similarly rebounded significantly from its morning lows.
Nvidia shares advanced 2.9% during Monday’s session. Apple shares increased 0.2%, contributing to a 0.4% rise in the broader Magnificent Seven technology index.
The iShares Expanded Tech-Software Sector ETF had experienced a nearly 35% decline from its September high point. The fund has subsequently rebounded more than 7.6% from the previous week’s bottom.
In a research note, JPMorgan analyst Mislav Matejka advised that investors maintaining a longer-term perspective “should be using the weakness” to increase their allocation to risk-oriented assets. He emphasized that underlying fundamentals continue to look favorable.
Jonathan Krinsky, BTIG’s chief market technician, headlined his analysis “When Missiles Fly, Time to Buy.” He characterized the market action as a tactical buying opportunity rather than a moment to exit positions.
Adrian Helfert from Westwood observed that maintaining equity positions has proven to be the correct strategy during every similar geopolitical episode dating back to 1990. Examining five comparable crisis events, stocks posted gains twelve months afterward in four instances.
What History Shows About Markets and Geopolitical Shocks
Ryan Detrick from Carson Group references historical data demonstrating that the S&P 500’s median return three months following a significant market shock reaches 2.7%. At the twelve-month mark, returns expand to 7.4%, with positive performance recorded 65% of the time.
Following the Hamas assault on Israel in October 2023, international equity markets posted gains over the subsequent full year. When the Iraq War commenced in 2003, stocks had climbed nearly 30% one year later.
Veteran market strategist Ed Yardeni anticipates that any increase in oil prices will prove transitory. He suggested that declining gasoline costs could enhance consumer spending capacity and help move inflation toward the Federal Reserve’s 2% objective.
Ivan Feinseth from Tigress Financial Intelligence indicated the Fed might consider rate reductions if the conflict becomes prolonged. Such monetary policy easing would likely arrive sooner should Kevin Warsh receive confirmation to succeed Jerome Powell as Federal Reserve chair.
Key Levels to Watch for the S&P 500
Futures contracts indicated further weakness heading into Tuesday, with Dow futures declining nearly 800 points. Brent crude oil was changing hands above $83 per barrel.
The VIX volatility index held above 20, a threshold typically interpreted as reflecting elevated investor anxiety. The S&P 500 has advanced just 0.5% year-to-date.
Adam Turnquist from LPL Financial cautioned that a decline below 6,775 on the S&P 500 could prompt a test of November’s low at 6,522. Technical analysts are now monitoring that support level closely.
