The Israel-Iran conflict is shaking the markets — but nervous investors aren't panicking

New York Post

11 hours ago

Wall Street's myopia was on full display in the immediate aftermath of the Israeli airstrikes against Iran.
Many of us were worried about the possibility of World War III as we saw the attacks almost in real time Thursday night.
Many of my sources were trying to gauge impacts on the Dow, oil prices and interest rates.
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You can make a good case that there is a place for such shortsightedness.
Leave the far-reaching geopolitical analysis to those who are better equipped to game-plan those outcomes, and the investor class should stay in its lane.
People still have to save for retirement, invest those savings, even if the Middle East is imploding.
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That said, the Wall Street take on the contretemps is certainly worth dissecting.
You can glean, if you look through the conflict's short-term impact on specific pieces of economic data and push the smart money on their meaning, some interesting broader conclusions about how the Israel-Iran conflict will ultimately shake out.
The market's top-line response was muddled.
Stocks initially sold off sharply, then came back only to tank into the close as Iran retaliated against Tel Aviv.
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Oil prices — which are always sensitive to conflicts in the Middle East — jumped about 7%.
But we've all seen worse on less existentially serious stuff.
The Dow closed down less than 800 points; the rollout of the Trump tariff plan — before Treasury Secretary Scott Bessent began putting the old genie back in the bottle to prevent an economic meltdown — saw far more wild moves in all sorts of investments.
When the trade war was raging, bond prices at one point tanked so much, you would think we were on the verge of the apocalypse.
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On Friday, the 10-year bond yield rose but is still below 4.5%, meaning people weren't rushing to the safe haven of Treasuries to plan for the worst.
Gold rallied, but it's been running hot for weeks amid the fears of tariff-induced inflation.
Not panicking
In other words, it seems like investors are nervous, but also they're not panicking because something good could follow something scary.
Namely, Israel neutered not just a foe that is developing nukes and threatening its destruction.
It also has degraded the world's most aggressively belligerent nation — the leading state sponsor of terrorism — by decapitating much of Iran's military leadership, key scientists that were on the verge of developing nukes, as well as large swaths of its armed forces.
In saving itself, Israel did us all a favor — even the Arab world, much of which abhors Iran's destabilizing militarism.
For investors, it could mean at the very least lower energy prices in the future.
Rich Arab countries finally might agree to recognize Israel, and the investment opportunities that will bring.
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I know saying the conflict could be long-term good for the markets sounds ignorant given what's at stake.
But life isn't mostly binary.
Fortunately in this case, what's good for stocks could be good for the world.
Of course, one day in the market is just one day.
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So much more will happen.
Israel says it's not done with its military action.
Iran retaliated, landing missiles in the heart of Tel Aviv after a first wave of deadly drones was largely swatted away by Israel's defenses.
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I have family in Israel so I pray for their safety as I've done almost every day since Oct. 7. US military installations could be attacked.
But some of my trading desk sources are pointing out that Israel seems to have its game plan down pretty solid, and the Iranian attack against us would be foolish since it already has its hands full.
The Israelis knew who to take out — the generals and scientists — and it clearly knew how Iran could respond.
It has already largely eliminated Iran's proxies, Hezbollah and Hamas.
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Notice how Israel didn't take out Iran's oil infrastructure, at least not yet.
If it did, oil prices would be higher and markets far more volatile.
And maybe Israel Prime Minister Benjamin Netanyahu is betting on the Iranian people.
I've never been to Iran, but I know plenty of Iranian Americans.
They tell me the country is largely secular, run by a fanatical minority that Israel might be weakening significantly.
This could be the push for regime change that we've been talking about for years.
Trump kept in the loop
President Trump here has been at his best, my Wall Street sources remind me, another reason they're not panic-selling. Israel kept him in the loop.
He alerted the world that the attacks would happen Thursday.
He then began distancing himself and our country from the direct conflict, while prodding Iran to get back to the negotiating table and end its nukes program.
Who knows, they might finally listen.
Wall Street is always looking for 'black swan' events — stuff most people don't see that could lead to catastrophic market results. Wars are terrible. It would be great if Iran chose peace, but maybe eliminating it as a threat to Israel and a lot more is a black swan that produces some long-term peace and prosperity.
Let's hope so and pray for the peace dividend it should deliver.