Why global markets are brushing off U.S. strikes on Iran Clutch Fire

The U.S. joining the war between Israel and Iran might seem like a geopolitical flashpoint that would send markets tumbling. Instead, investors are largely shrugging off the escalation, with many strategists believing the conflict to be contained — and even bullish for some risk assets.

By 9:30 a.m. in London on Monday, the MSCI World index, which tracks over a thousand large and mid-cap companies from 23 developed markets, was just 0.1% lower.

European shares pared early losses to trade in firmer territory, with the pan-European Stoxx 600 marginally higher following a sell-off at the open. U.S. stock futures also ticked higher, with futures tied to the S&P 500 gaining 0.2%.

Safe-haven assets also saw a muted response. The yield on the benchmark 10-year note gained 2 basis points, while spot gold shed 0.2% to trade at around $3,359 per ounce. The safe-haven Swiss franc was last seen flat against the U.S. dollar, which rose against several currencies on Monday morning.

In general, the market reactions after the U.S. strikes have been less aggressive, especially relative to just over a week ago when Israel launched airstrikes against Iran.

“The markets view the attack on Iran as a relief with the nuclear threat now gone for the region,” said Dan Ives, managing director at Wedbush, adding that he sees minimal risks of the Iran-Israel conflict spreading to the rest of the region and consequently more “isolated.”

While the gravity of the latest developments should not be dismissed, they are not seen as a systemic risk to global markets, other industry experts echoed.

On Saturday, U.S. President Donald Trump said that the United States had attacked Iranian nuclear sites. Traders are now keeping a close eye on any potential countermeasures from Iran following the U.S. strikes on its nuclear facilities.

Iran’s foreign minister warned that his country reserved “all options” to defend its sovereignty. According to Iranian state media, the country’s parliament has also approved closing the Strait of Hormuz, a pivotal waterway for global oil trade, with about 20 million barrels of oil and oil products traversing through it each day.

“It all depends on how Iran responds,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “If they accept the end of their military nuclear desires… then this could be the end of the conflict and markets will be fine,” he told CNBC. Boockvar is not of the view that Iran will carry out the disruption of global oil supplies.

The worst-case scenario for markets would occur if Iran were to close the Strait, which is unlikely, said Marko Papic, chief strategist at GeoMacro Strategy.

“If they do, oil prices go north of $100, fear and panic take over, stocks go down ~10% minimum, and investors rush to safe havens,” he said.

However, markets are subdued now given the “limited tools” that Tehran has at its disposal to retaliate, Papic added. 

The idea of shutting down the Hormuz waterway has been a recurring rhetoric from Iran, but it has never been acted upon, with experts highlighting that it is improbable.

In 2018, Iran warned it could block the Strait of Hormuz after the U.S. pulled out of the nuclear deal and reinstated sanctions. Similar threats were made earlier in 2011 and 2012, when senior Iranian officials — including then-Vice President Mohammad-Reza Rahimi — said the waterway could be closed if Western nations imposed more sanctions on Iran’s oil exports due to its nuclear activities.

“Tehran understands that, if they were to close the Strait, the retaliation from the U.S. would be swift, punitive, and brutal,” Papic added.

In a similar vein, Yardeni Research founder Ed Yardeni said the latest events have not shaken his conviction in the U.S. bull market.

“Geopolitically, we think that Trump has just reestablished America’s military deterrence capabilities, thus increasing the credibility of his ‘peace through strength’ mantra,” he said, adding that he is targeting 6,500 for the S&P 500 by the end of 2025.

While predicting geopolitical developments in the Middle East is a “treacherous exercise,” Yardeni believes that the region is in for a “radical transformation” now that Iranian nuclear facilities have been destroyed.