The S&P 500 could hit record highs soon if no major retaliation from Iran, Wharton professor Jeremy Siegel says
The US attacks on Iranian nuclear facilities over the weekend have sparked fresh anxiety in markets, but there's a scenario in which stocks can soar to new records amid the conflict.
That's according to Jeremy Siegel, the chief economist of Wisdom Tree and a professor of Finance at The Wharton School at the University of Pennsylvania, who said that the development could ultimately be a positive for stocks.
Siegel told CNBC on Monday that, as he sees it, the market is likely to continue edging higher in the short term. The economist predicts that "new all-time highs in the S&P 500 are certainly attainable over the next several weeks."
He added that his thesis is contingent on Iran taking no retaliatory action towards the US. Leaders in Iran have "vowed to respond," stating that it "reserves all options."
Trump has made it clear that he is not opposed to using further military force if Iran chooses to escalate the conflict further.
The market's reaction has been muted so far, with minimal price action among major indexes on Monday and oil slipping back down after initially spiking after the US attacks.
Siegel described the attack as "a success to neutralize Iran," noting that he saw this as ultimately being positive for stocks, as it would likely lead to a faster resolution being reached for the countries involved.
He said he believes major US stock indexes can reach new highs if the conflict does not persist and Iran does not escalate further, which he seems to see as the most likely scenario.
"I think most people agree they are farther away from producing a bomb than they were on Friday, and that's positive for the markets," he said.
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Defense stocks were modestly higher Monday during premarket trading after the US bombed three Iranian nuclear facilities over the weekend. Palantir (PLTR), Lockheed Martin (LMT), and Northrop Grumman (NOC) rose less than 1%, while RTX (RTX) climbed 1.3%. Palantir supplies AI-fueled defense tech to Israel, which has prompted blowback from former employees and protesters. The other three companies supply weapons to Israel through their contracts with the US government. The defense stocks had jumped immediately after Israel's first airstrikes on Iran on June 12, but only RTX has sustained notable gains of 4% since those strikes. Lockheed Martin is up 0.3% over that time frame, while Northrop Grumman is roughly flat (up 0.1%). Palantir has risen 1.6%. Jefferies (JEF) analyst Mohit Kumar wrote Monday, 'Market is now waiting to see how Iran reacts …However, we are not fully convinced around the market's sanguine reaction.' 'Defence has been one area that we have been bullish on, and we continue to maintain our overweight exposure,' he added. 'NATO countries have moved to increase defense spending with a long term goal of taking to 5% of GDP. We are typically skeptical of long term goals as goal posts do change, but it is also clear to us that defense spending needs to increase globally and not just for NATO countries.' Energy stocks rose alongside rising oil prices in premarket trading on Monday while overall stock futures wobbled. Those with oil production in the US and outside the Middle East caught a bid as investors weighed the possibility of further disruption to the oil supply following the US strikes on Iran. The Energy Select Sector SPDR Fund (XLE) advanced 0.6% and has risen 6% in the past month. Here's a look at how trending energy stocks are trading this morning: View more trending tickers here. Yahoo Finance's Jennifer Schonberger reports: Read more here. 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Here's what Goldman's team estimates: "If oil flows through the Strait of Hormuz were to drop by 50% for one month and then were to remain down 10% for another 11 months, we estimate that Brent would briefly jump to a peak of around $110." Read more here on Goldman's scenarios. Gold pushed higher with the world in limbo as the US joined Israel's attack on Iran over the weekend. No formal response has been issued by Iran, with wider fallout expected. Spot gold climbed 0.2% to $3,375.04 an ounce taking it to within $125 of its record high as investors sought safe-haven assets in a tumultuous economic situation. Gold then sank 0.5% despite broader haven demand. Bloomberg reports: Read more here. Wall Street is closely watching escalating tensions in the Middle East after President Trump confirmed that the US launched a surprise strike on Iran's nuclear sites late Saturday, marking the country's official entry into the two-week-old conflict. Markets have held mostly steady in the aftermath of the escalation, although US stock futures fell across the board when trading opened Sunday evening. Additionally, bitcoin (BTC-USD) prices, often viewed as a barometer of risk appetite, dropped over 1.6% to trade around $100,500 a coin. WTI crude (CL=F) and Brent (BZ=F) futures jumped, trading near $76 and $79 a barrel, respectively, as uncertainty looms over the potential closure of the critical Strait of Hormuz despite ongoing threats from Iran. The latest surge follows oil's third consecutive week of gains on Friday. "We wouldn't be surprised to see this spark a risk-off reaction in US equities and will be watching the futures closely on Sunday evening and Monday morning," Lori Calvasina, head of US equity strategy research at RBC Capital Markets, wrote in a Sunday evening note to clients. "It has been and remains our belief that the longer and broader the conflict becomes, the more challenging it could be for US equities," Calvasina added. "These escalations come at a tricky time for US equities, as the S&P 500 has looked fairly valued to us (perhaps a bit overvalued) from a fundamental perspective, with more room to run from a sentiment perspective." The analyst said her three main concerns include: first, the risk that rising national security uncertainty could weigh on equity valuations; second, the possibility that renewed geopolitical tensions could stall the recovery in sentiment that began after the early April tariff lows; and third, the potential for a spike in oil prices, which could fuel inflation concerns. In terms of sectors, Energy (XLE) tends to outperform when oil prices rise, while Consumer Discretionary (XLY) and Communication Services (XLC), along with Entertainment, Media, and Interactive Media, tend to lag behind the broader market, Calvasina noted. Citi analyst Stuart Kaiser agreed that sharply higher oil prices remain "the channel for geopolitical risks to impact stock markets," identifying crude prices "well above $80 a barrel" as a critical threshold for concern. Kaiser added that options markets are now pricing in a 10% chance that oil surges 20% over the next month, up from just 2.5% two weeks ago, reflecting mounting tail risks as the conflict deepens. Still, the analyst pointed to resiliency in stocks amid the volatility, saying, "Markets powered through extreme oil volatility and unstable geopolitical headlines to post a risk-on week."
San Francisco Chronicle
41 minutes ago
- San Francisco Chronicle
The Strait of Hormuz is a vital route for oil. Closing it could backfire on Iran
The war between Israel and Iran has raised concerns that Iran could retaliate by trying to close the Strait of Hormuz, the world's most important oil chokepoint due to the large volumes of crude that pass through it every day. The U.S. military's strike on three sites in Iran over the weekend has raised questions about how its military might respond. The Strait of Hormuz is between Oman and Iran, which boasts a fleet of fast-attack boats and thousands of naval mines as well as missiles that it could use to make the strait impassable, at least for a time. Iran's main naval base at Bandar Abbas is on the north coast of the strait. It could also fire missiles from its long Persian Gulf shore, as its allies, Yemen's Houthi rebels, have done in the Red Sea. About 20 million barrels of oil per day, or around 20% of the world's oil consumption, passed through the strait in 2024. Most of that oil goes to Asia. Here is a look at the waterway and its impact on the global economy: An energy highway in a volatile region The strait connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. It's only 33 kilometers (21 miles) wide at its narrowest point, but deep enough and wide enough to handle the world's largest crude oil tankers. Oil that passes through the strait comes from Saudi Arabia, the United Arab Emirates, Iraq, Iran, Kuwait, and Bahrain, while major supplies of liquefied natural gas come from Qatar. At its narrowest point, the sea lanes for tankers lie in Omani waters, and before and after that cross into Iranian territory. While some global oil chokepoints can be circumvented by taking longer routes that simply add costs, that's not an option for most of the oil moving through the strait. That's because the pipelines that could be used to carry the oil on land, such as Saudi Arabia's East-West pipeline, they don't have nearly enough capacity. 'Most volumes that transit the strait have no alternative means of exiting the region,' according to the U.S. Energy Information Administration. Closing the Strait of Hormuz would send oil prices massively higher — at least at first If Iran blocked the strait, oil prices could shoot as high as $120-$130 per barrel, at least temporarily, said Homayoun Falakshahi, head of crude oil analyst at Kpler, in an online webinar Sunday. That would deal an inflationary shock to the global economy — if it lasted. Analysts think it wouldn't. Asia would be directly impacted because 84% of the oil moving through the strait is headed for Asia; top destinations are China, India, Japan and South Korea. China gets 47% of its seaborne oil from the Gulf. China, however, has an oil inventory of 1.1 billion barrels, or 2 1/2 months of supply. U.S. oil customers would feel the impact of the higher prices but would not lose much supply. The U.S. imported only about 7% of its oil from Persian Gulf countries through the strait in 2024, according to the USEIA. That was the lowest level in nearly 40 years. Iran has good reasons not to block the strait Closing the strait would cut off Iran's own oil exports. While Iran does have a new terminal under construction at Jask, just outside the strait, the new facility has loaded oil only once and isn't in a position to replace the strait, according to Kpler analysts. Closure would hit China, Iran's largest trading partner and only remaining oil customer, and harm its oil-exporting Arab neighbors, who are at least officially supporting it in its war with Israel. And it would mean blocking Oman's territorial waters, offending a country that has served as a mediator between the U.S. and Iran. The US would likely intervene to reopen the strait Any price spike would probably not last. One big reason: Analysts expect that the U.S. Navy would intervene to keep the strait open. In the 1980s, U.S. warships escorted Kuwaiti oil tankers through the strait to protect them against Iranian attacks during the Iran-Iraq war. A price spike 'wouldn't last very long' and the strait would likely be reopened 'very fast,' said Kpler's Falakshahi. U.S. use of force to reopen the strait would likely be supported by Europe and 'even unofficially by China,' he said. 'Iran's navy would probably get destroyed in a matter of hours or days.'
