Why the Stock Market Is Shrugging Off Mideast Tensions
Despite escalating Mideast tensions, notably between Israel and Iran, global stock markets have recently shrugged off the conflict and even posted gains. On June 16, 2025, US benchmarks like the S&P 500, Nasdaq, and Dow Jones ticked higher, while oil and gold retreated from their surge immediately after the hostilities intensified.
Stocks’ resilience prompts an important question: Is it normal for markets to behave this way amid geopolitical conflict?
Historical Perspective on Market Behavior
Historically, the market dips initially during sudden Geopolitical shocks, such as wars or missile exchanges, but tends to rebound quickly:
- Following a geopolitical shock, the S&P 500 typically drops around 6% over three weeks, then recovers losses in the next three.
- Major event risks, such as conflicts that impact economic fundamentals like energy supplies, can cause sharper corrections. Still, recovery often follows.
This pattern is why today’s rebound amid Mideast tensions doesn’t alarm many investors.
Why Markets Are Staying Bullish
Contained, limited conflict
Reports that Iran is open to talks about nuclear negotiations helped ease market fears. Oil fell as investors became less concerned about supply disruption:
- Brent crude dropped ~1.3%, WTI dipping below $72.
No major supply shock
Although a flare-up in oil prices occurred earlier, a 7-8% jump following initial attacks, prices later stabilized. Core worry: Disruption in the Strait of Hormuz isn’t materializing, which helps contain inflation fears.
Investors focusing on fundamentals
Key data points like inflation trends, corporate earnings, and central bank policy overshadow headlines:
- U.S. CPI eased to 2.4% YoY, near the Fed’s target.
- Markets are also watching upcoming central bank events across the G‑7.
Risk Scenarios to Monitor
While current confidence is high, markets are keeping an eye on potential escalations:
- Oil shocks, if infrastructure or the Strait of Hormuz is targeted, the price could exceed $100.
- Inflation implications, a sustained oil surge could derail the Fed’s easing plans.
- Tariff and trade uncertainties, global policy risks may compound geopolitical effects.
What It All Means for Investors
- Volatility remains low: The VIX index, a key measure of market fear, dropped by around 8 to 9%. This shows that investors are not panicking and expect the market to stay calm unless new risks arise.
- Safe-haven demand is easing: Gold prices have fallen by nearly 1%, and the US dollar has remained stable. This signals that investors are not rushing to save assets and are instead returning to stocks.
- Energy and defence stocks surged briefly: At first, the energy and defence sectors saw gains due to war concerns. But the momentum shifted back toward growth stocks once tensions showed signs of cooling.
- Investors’ focus is still on fundamentals: Rather than reacting strongly to every headline, markets are more focused on inflation data, central bank decisions, and overall economic performance.
- Watch for escalation risks: Tensions in the Middle East grow and oil suppliers are disrupted, investor behaviour could change quickly. For now, the outlook remains optimistic.
Final Thoughts
Markets are flashing a familiar “shock‑dip‑rebound” pattern during the latest Mideast tensions. The initial panic on oil prices and equities has rapidly given way to investor confidence. Right now, fundamentals, like inflation data, macroeconomic health, and central bank policy, are taking precedence over geopolitical headlines.
FAQs
Analysts caution that closing the Strait of Hormuz or hitting oil infrastructure could push prices past $100 . For now, oil sits in the low $70s.
Not necessarily. A “war puzzle” exists; initial dips are often followed by recoveries, as long-term fundamentals remain stable.
Higher oil prices from prolonged conflict could reignite inflation, potentially restricting the Fed’s ability to cut rates. Investors are watching this closely.
At this stage, broad-based equity exposure remains sound. Monitoring energy stocks may be strategic given their responsiveness to oil price swings.
Disclaimer:
This content is made for learning only. It is not meant to give financial advice. Always check the facts yourself. Financial decisions need detailed research.