Will the Situation In Iran Crash Stocks?
The United States (U.S.) and Israel struck Iran over the weekend.
Initial reports indicate that most of Iran’s leadership has been killed. Iran has since retaliated striking several U.S.-aligned locations in the Middle East. That’s all we know for now.
In the big picture, the world has fundamentally changed, but it is far too early to ascertain the implications of this. Anyone who tells you they understand precisely what is happening and how this will unfold is lying.
What is clear is that Iran has entered a period of intense chaos. And given its geopolitical significance (a primary supplier of oil to China, close alignment with anti-U.S. regimes, funding of terrorist activities) this has shifted power in the world.
But again, it is too early to tell how this will play out from a geopolitical perspective.
What is clear is that thus far the reaction by the financial system is relatively tame. Oil initially spiked 12% in the overnight session but has since retraced most of these gains. As I write this Monday morning, oil futures are up only 8%. Given that Iran is a top 10 oil producer and is located next to the Strait of Hormuz, through which 20% of global oil and gas resources are shipped, this is relatively calm.
If the world were indeed about to descend into World War III and global oil supplies disrupted oil would be much higher.
Similarly, the S&P 500 is only down ~1%. This too is quite tame. If a major war was about to break out that would disrupt the global economy, you would expect a 3%+ price move. Heck, Liberation Day, which was primarily a legislative development saw the markets nose-dive 5%!
So again, the markets seem to be indicating that this situation will NOT result in any MAJOR disruptions. Obviously, that can change at any time, but for now, things are relatively controlled.
The larger concern, is if this situation, combined with the fact market leadership was already breaking down, could in fact trigger a market crash. The MAG-7 which have been the primary drivers of the bull market since November 2023 are collapsing. And given that these are the stocks that have led this market to the upside… the fact they are now leading to the downside does in fact open the door to a potential crash.
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Graham Summers, MBA
Chief Market Strategist
Phoenix Capital Research