Global markets are poised for another textbook Monday morning freakout. The headlines write themselves: U.S. launches strike on Iran, Tehran vows revenge, oil futures spike, investors panic.
Investors are understandably nervous. After all, we’re not talking about a routine diplomatic spat or trade war tweetstorm, this is a full-blown military escalation involving Iran, Israel and now the United States.
Markets are gearing up for what could be a violent open, equities under pressure, oil surging, and a rush into traditional safe havens like the dollar, gold and Treasuries. It’s the classic risk-off response, almost mechanical at this point. But while the headlines are dramatic, seasoned investors know this isn’t uncharted territory. We’ve seen this play out before, and the market tends to recover faster than the fear narrative suggests.
But from a purely financial perspective, Wall Street is famously desensitised to geopolitical shocks. History shows us that even the most dramatic headlines out of the Middle East rarely derail the broader equity bull run for long.
So why does this latest crisis feel different?
Because inflation is back in the conversation, and this time, it’s not just theoretical. Oil flirting with $100 a barrel isn’t just a political headache, it’s a monetary policy problem. The Federal Reserve, having just hit the pause button on rate cuts, is watching every tick in energy prices with anxiety. A sustained spike in oil could reroute the entire narrative on inflation and rates, which is what truly matters for equities in 2025.
For now, though, it’s likely that the bigger risk is overreaction rather than underreaction. The market is already conditioned to fear escalation, especially one involving Iran, Strait of Hormuz disruptions, and oil’s chokehold on global transport. But equally, it’s also grown numb to fire-and-fury headlines that rarely lead to long-term economic disruption.
This weekend’s events do overshadow the upcoming economic calendar, business activity data, housing numbers, and Friday’s PCE inflation print, but not necessarily in a lasting way. If Iran’s retaliation is swift but measured, and if oil prices don’t go parabolic, there’s a strong case for a shallow selloff followed by buyers stepping in.
If oil climbs and stays elevated, expect markets to start pricing in fewer rate cuts, or worse, a renewed hiking bias. That would be a far bigger drag than missiles flying over the Gulf.
In short, expect drama at the open. Expect panic headlines. But also remember, this isn’t 2008. The market isn’t clueless. It’s cynical, seasoned, and always searching for the bottom to buy.
As for Trump’s “spectacular military success,” Wall Street is far less interested in his TV-ready proclamations than in Brent crude’s next move, and what Powell thinks about it.
Let’s see who blinks first, Iran, or the bond market.
Stay safe!