S&P 500 futures were down 1.22% this morning as part of a broad global selloff in the stock markets triggered by the conflict between Iran and the U.S. and Israel.
The STOXX Europe 600 was down 1.76% in early trading; the U.K.’s FTSE 100 was down 0.63% before lunch. Japan’s Nikkei 225 closed down 1.35% and South Korea’s KOSPI was down 1%.
But, even as investors entered a worldwide ‘risk-off’ phase, some on Wall Street plotted for gains in assets that respond well to war:
- At Wells Fargo, Ohsung Kwon and his colleagues noted that, in the months after the first and second Gulf Wars, the S&P 500 rose 16% and 14%, respectively.
- Unsurprisingly, the price of oil rose sharply after the attack on Tehran begun, rising 13% at one point.
- Gold, investors’ favorite safe haven, also went up this morning to a new all-time high.
- The dollar rose—it was up nearly 1% against the standard basket of foreign currencies before some of its gains were pared. Oil contracts are usually settled in dollars, so when oil goes up so does demand for the U.S. currency.
- Defense stocks did well this morning. BAE Systems was up more than 6% on the U.K. market and Germany’s Rheinmetall AG was up 2% prior to lunch.
“Higher oil and gas prices are certain as the closure of the Strait of Hormuz threatens to disrupt 15% of global oil supply and 20% of global [liquid natural gas] supply, with oil prices potentially exceeding $100 [per barrel] if tanker flows are not quickly restored,” Alan Gelder of research firm Wood Mackenzie said in an email.
At J.P. Morgan Chase, Joseph Lupton and his colleagues attempted to gauge how serious this round of conflict is compared to previous events. “We cannot confidently map the military or political path ahead, but recognize that this event generates greater macroeconomic risk than recent military conflicts—the US intervention in Venezuela or the Israel-Iran conflict,” they told clients. “Through its potential to disrupt global energy markets and supply chains, it connects more closely to the 2022 Russian invasion of Ukraine. It is also similar to the Russian invasion in that it looks likely to have material, lasting political and economic consequences at the regional level.”
They agreed with Wood Mackenzie that the conflict could be serious enough to push oil over $100 per barrel. But in the short term, “Our commodity strategists do not believe this scenario is likely to be realized.”
ING said much the same thing.
While stocks are plummeting globally today, Wells Fargo’s Kwon argued that traders should buy the dip.
The S&P 500 “was largely flat during the military buildup, then rallied 16% during the Gulf War 1 and 14% in the first three months of Gulf War 2,” he told clients. “History also suggests geopolitical dips should be bought, usually recovering in two weeks. Absent further escalation or an oil shock (more below), we remain bullish equities.”
But there may be pain before the gains, they said. “Equity volatility during geopolitical events largely followed the oil market, with historical oil shocks translating into a 16% decline on the S&P 500 on average. In the event of a prolonged Hormuz closure and an oil shock to $100+, we forecast the worst-case scenario of 6000 on the S&P 500.”
Here’s a snapshot of the markets this morning prior to the opening bell in New York:
- S&P 500 futures were down 1.22% this morning. The index closed down 0.43% in its last session.
- STOXX Europe 600 was down 1.76% in early trading.
- The U.K.’s FTSE 100 was down 0.63% in early trading.
- Japan’s Nikkei 225 was down 1.35%.
- China’s CSI 300 was up 0.38%.
- The South Korea KOSPI was down 1%.
- India’s NIFTY 50 was down 1.20%.
- Bitcoin was at $66.4K.
