Trading the Markets Reaction to Geopolitical Uncertainty: Navigating the Israel-Iran Conflict and Market Trends
The latest geopolitical event to try and shake our confidence in the bull market is the Israel-Iran conflict. With headlines suggesting a potential closure of the Strait of Hormuz, which is the sole passage from the Persian Gulf to the open ocean, there were fears that it could strain oil supplies. However, markets have largely brushed off these concerns, with a limited retaliation from Iran launching missiles at a US air base in Qatar.
Investors often doubt new bull markets, even for years after they begin. They wonder how we can be in a bullish period when things are so bad. But stocks don't necessarily move higher because things are improving; rather, they climb because everyone expects the worst.
From an investment standpoint, it's important to remember that markets have a way of moving past geopolitical events fairly quickly. The Israel-Iran conflict is just the latest example of this. It's a reminder to trade the market's reaction, not the news headlines. If it does escalate to the point where it truly affects stocks, then we can regroup and adjust our outlook. For now, the trend remains up, and we need to be aligned with it.
The S&P 500 is now less than 2% away from its prior all-time high. It pays to listen to the market instead of trying to predict what will happen. Fed Governor Michelle Bowman expressed support for a rate cut "as soon as" July, while Fed Chair Jerome Powell reiterated that the central bank was not in a hurry to cut rates. The Chairman is appearing before the House Committee on Financial Services this morning, where he is widely expected to deliver a similar message. Markets are eagerly awaiting more inflation data in the form of May's Personal Consumption Expenditures (PCE) index, due to be released Friday morning.
It's never easy dealing with uncertainty, but it's important not to get stuck on a story like a geopolitical event. We can't allow fear of a deeper correction to harm our long-term returns. While we saw a knee-jerk reaction to tariffs earlier in the year, markets have shown a return to stability. High levels of skepticism remain, but signs of forward momentum, including tech sector outperformance and innovative AI breakthroughs, are bullish themes that point to more strength ahead. With the help of our team here at Zacks, you'll be ready to capitalize on this opportunity and make the most of it.
