Investors are expected to shift toward safe-haven assets such as Treasury bonds, gold, and Swiss francs as Middle East tensions peak following U.S. and Israeli airstrikes on Iran and Iran's subsequent retaliation. Some experts recommend buying stocks only after the S&P 500 drops more than 10%.
According to Bloomberg on Tuesday local time, all investor attention will focus on energy markets when trading resumes on Wednesday. Volatility is expected to begin in Australia, where the U.S. dollar and other currencies resume trading first. If Middle East fighting persists and oil prices rise, global asset managers will likely sell stocks and shift to safer assets.
"The scale of the U.S. attack and Iran's retaliation is larger than the market expected," said John Briggs, head of U.S. rates strategy at Natixis. "Traders will rush to buy safe-haven assets."
Briggs noted that short-term Treasury yields fell to 2022 levels last Friday, just before the U.S. attack, with prices rising. He said this trend could continue for the time being. Other traders are closely monitoring developments after the Strait of Hormuz, through which 25% of global crude oil and liquefied natural gas trade passes, was effectively closed.
The U.S. stock market was already tense from tariff policies, artificial intelligence outlook concerns, and private credit turmoil. The Iran airstrikes could trigger additional capital outflows, analysts warn.
Saudi Arabia's stock market, which remained open during the airstrikes, opened down 5% on Tuesday. Bitcoin recovered from its decline to trade around $68,000. Brent crude closed at its highest price since July. The S&P 500 fell 0.4%.
Some view the stock volatility as a buying opportunity. The airstrikes, coming after a similar situation last June, may cause only short-term volatility before recovery, they argue.
However, Ajay Rajadhyaksha, global research head at Barclays, warned against buying too quickly. "Investors expect this to pass quickly, but this attack risks lasting longer," he said, citing possibilities including increased U.S. casualties, additional strikes on Iranian leadership, and communication disruptions for ships passing through Hormuz.
"Risk remains high, but the rewards are not," Rajadhyaksha emphasized. "A buying opportunity will come when the S&P 500 drops more than 10%, but not yet."