Why markets are weirdly calm after the US bombed Iran
The US bombed three Iranian nuclear facilities on Sunday.
Traders expected volatility on Monday, but markets have been unexpectedly calm.
That likely reflects uncertainty, the timing of the bombings, and Iran's limited retaliation options.
Investors were bracing for a wild day of trading on Monday after the US bombed Iran on Sunday, but world markets are surprisingly calm.
As of 5:30 a.m. ET, US stock futures, Treasury yields, and gold have barely budged, crude oil prices are up only 0.3%, the US Dollar Index is 0.7% higher, and bitcoin has erased its dip to below $99,000 to trade at about $101,500.
The US used "bunker busters" to strike Iran's underground nuclear infrastructure. President Donald Trump hailed the damage as "monumental" and warned of further strikes if Iran retaliates.
The Iranian parliament has voted to close the Strait of Hormuz, through which passes about a fifth of the world's oil and gas. Government officials have said "all options" are on the table, yet financial markets appear largely unperturbed.
One reason is uncertainty over what comes next. Iran is yet to retaliate, meaning the possibility of a one-off US military engagement instead of a prolonged conflict hasn't been ruled out.
Iran seems to have limited options, given it relies on oil revenue from the Strait and may not want to anger its oil-exporting neighbors, and has fewer proxies and allies willing or able to help than in the past.
The US has also emphasized it targeted nuclear sites, meaning Iran might retaliate against military targets if it does take action, preventing a full-blown war from breaking out.
The fact the strikes occurred over the weekend has given traders time to process the potential fallout. If they happened during market hours, they might have taken knee-jerk actions with a "better safe than sorry" mindset, given the risk of being exposed and suffering big losses.
Investors have also been pricing in geopolitical risks for months, especially given the Israel-Hamas conflict and Israel's recent attacks on Iranian military leaders and Tehran's proxies such as Hezbollah.
However, Trump has raised the prospect of "regime change" and suggested further strikes aren't off the table, meaning the possibility of escalation remains.
The president's tariffs have already muddied the outlook for global growth, and the renewed possibility of America getting roped into a military campaign in the Middle East once again gives investors plenty to chew over.
It's clear a market panic hasn't taken hold as yet, but the US strikes have created a dust cloud of uncertainty and raised additional risks to market watchers.
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'NOW IS THE TIME FOR PEACE!' Donald Trump posted on Truth Social right after the United States launched a bombing campaign against three sites crucial to the Iranian nuclear program. But Iran gets a vote on whether that time has indeed come, and its leaders are instead vowing 'everlasting consequences.' What happens next in this rapidly expanding war largely depends on what exactly Iran means by that. That's not easy to predict, because the next stage of the conflict now hinges on an Iran facing unprecedented circumstances. The Iranian regime is arguably more enfeebled and imperiled than it has been since the 1979 revolution ushered the Islamic Republic into existence. 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Close the Strait of Hormuz Iran could take a big step and use its military to disrupt shipping or even seek to shut down commerce in the Strait of Hormuz, a crowded international waterway near southern Iran through which roughly one-fifth of the world's oil supply passes. Indeed, in the hours after the U.S. strikes, the Iranian parliament reportedly granted its support for such a measure, though Iran's leadership hasn't yet followed through with action along these lines. Such a move would affect the global economy, driving down financial markets, driving up the price of oil, and inflicting steep costs on economies around the world. It would likely get the attention of the economic-minded American president. But in addition to the fact that the U.S. military might contest such a move, the dispersed pain of this measure could ultimately make it an unattractive option for Iran. The economic shock would boomerang back to Iran, in addition to harming Iran's patron, oil-importing China, as well as oil-exporting Gulf Arab states. In recent years, Iran has been improving its relations with Saudi Arabia and the United Arab Emirates—the Saudis even restored diplomatic ties with the Iranians in 2023. The Iranian regime will likely be wary of alienating partners at a time when it is so isolated and diminished. 2. Attack U.S. personnel or interests in the Middle East Iran could also choose, either directly or through what remains of its regional proxy groups, to attack U.S. forces, bases, or other interests in the region. That could include attacks on U.S. personnel or energy-related infrastructure based in Gulf countries allied with the United States, with the latter option serving as another way to induce economic shock. But Tehran's assessment here may be similar to its calculations regarding the Strait of Hormuz. 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