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 6:15 a.m. ET, US stock futures are tracking higher, Treasury yields and gold have barely budged, crude oil prices are up less than 1%, the US Dollar Index is 0.6% higher, and bitcoin has erased its dip to below $99,000 to trade at about $101,500.
“The markets are not yet reacting with any degree of panic to the US airstrike on Iran’s nuclear facilities as they await to see how Tehran responds,” Russ Mould, AJ Bell’s investment director, said in a morning note.
After a week of Israeli attacks on Iranian nuclear facilities and other targets, the US deployed “bunker busters” to strike the nation’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.
Escalation still possible
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. Disruptions to the global oil supply could fuel inflation and curb growth, meaning the economic stakes are high for much of the world.
“The situation is evolving rapidly, and the ultimate consequences remain uncertain, requiring investors to stay alert as new developments arise,” Hakan Kaya, senior portfolio manager at Neuberger Berman, said in a morning note.
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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