Nicholas A. Juhle, CFA®

Senior Vice President, Director of Research

Perspective on U.S./Iran Escalation

What happened?

The tone in global financial markets turned cautious this morning after a U.S. airstrike in Iraq ordered by President Trump killed one of Iran’s most powerful generals, fueling concern over escalating tensions.  According to the Defense Department, the U.S. military took “decisive defensive action” by killing General Qaseem Soleimani who was “actively developing plans to attack American diplomats and service members in Iraq and throughout the region.”  Iran’s supreme leader, Ayatollah Ali Khamenei, vowed “severe retaliation” signaling potential military response on U.S. installations and bases in the Middle East.

What does it mean for the markets?

Given recent market strength and positive sentiment heading into the New Year, news of the escalation in Iran and particularly the uncertainties surrounding “severe retaliation” may take some wind out of the sails in the short term.  The market response this morning has been a flight to safety.  U.S. bonds, the Yen, and gold are all higher, while equities are under pressure.  Oil also spiked on concerns that the conflict could result in a shortage.

Asset Price Return
US Stocks 3,232 -0.80%
10 Year Treasury 1.81% 0.52%
Gold 1,546 1.11%
Yen 108.06 0.51%
Oil (Brent) 68.75 3.77%

Intermediate-to-longer term market implications will depend heavily on how the situation unfolds in coming months.  We view geopolitical risk as a constant presence in our approach to investment management.  Geopolitical tensions tend to ebb and flow and while escalating tensions between the U.S. and Iran are not a good thing on a number of fronts, we caution investors not to overreact to today’s headlines.

Bottom line

Maintaining discipline during periods of uncertainty and market volatility is the most reliable course for growing and preserving wealth over the long-term.  We will continue to monitor and evaluate developments in the Middle East.  As the situation unfolds, we will be here to respond and communicate our views. Please contact any member of our team if you have questions.

Sources: Bloomberg, LP