(Bloomberg) - Morgan Stanley strategists see the eruption of conflict in Iran and the Middle East as unlikely to derail their bullish view on US stocks, barring a sharp and sustained surge in oil prices.
Geopolitical risk events historically haven’t resulted in sustained volatility for US equities, the team led by Mike Wilson wrote in a note, citing the average performance of the S&P 500 index in months following such episodes.
In terms of the latest Iran conflict, the bear case stems from a sharp and persistent rise in oil prices, which could compromise what the strategists see as a strengthening business cycle, the strategists said.
“Unless oil prices spike in a historically significant manner and remain elevated, recent events are unlikely to change our bullish view on US equities over the next 6-12 months,” they wrote.
US equity markets are poised to open for the first time since the weekend’s US and Israeli strikes on Iran, with hostilities escalating across the region. It has already been a challenging start to the year for the S&P 500, with US stocks out of favor relative to international peers amid concerns that include artificial intelligence disruption and the impact of Trump administration policy.
Oil prices on Monday surged the most in four years as traders assessed the effective closure of the Strait of Hormuz and the halting of a big refinery in Saudi Arabia. European equities fell by the most since November, driven by declining travel, retail and luxury stocks. Shares also fell sharply in Asia.
For Wilson, healthcare remains the preferred defensive play, as cheap valuations, improving earnings and fading policy overhangs have helped attract broader investor interest.
To be sure, RBC strategist Lori Calvasina cautioned against paying too much attention to historical studies that recommend buying the dip on bad geopolitical news. While bulls are “technically correct,” she cautioned that the idea was driven by trends stemming from “more limited” conflicts.
“It is very difficult to look at geopolitical events in isolation when it comes to the stock market. What’s happening with geopolitics is usually a piece of a larger puzzle,” Calvasina said.
By Levin Stamm
With assistance from Farah Elbahrawy.
