The news from Iran over the weekend generated pretty much the market response you would expect from risky assets. There was a bit of weakness in stocks early on Monday, but nothing too dramatic, and US equities ended the day up a bit. Oil rose, but not into the danger zone that could mess up the global economy. As I recently wrote, that’s just not enough to prompt a change of mind from President Donald Trump on Iran. If anything, it’s a bright green light.
As Rob wrote on Monday, that doesn’t mean markets are full of monsters with no capacity for empathy. Judging whether events are good or bad, virtuous or wicked, is just not what markets are for. They certainly don’t act as a gauge of human suffering.
Sticking with risky assets, precedent says they always bounce back from these shocks. “Historically, geopolitical risk events haven’t led to sustained volatility for equities. In fact, 1/6/12 months post these occurrences, the S&P 500 has been up 2%/6%/8%, on average,” said analysts at Morgan Stanley. Of course, the bank stressed, the war could get worse. Oil prices could still hit the roof, and then all bets are off. Gas prices are already off to the races. But so far this is just a blip, oil-market wise, and that’s the bit that matters. From Deutsche Bank: