1. “Investors are stuck in geopolitical pinball.”

Trump said he postponed strikes against Iranian power plants for five days, and even though the Iranians said he wasn’t talking to anyone it was enough for prices to pull back 9% from over $100/barrel.

The five-day clock is now ticking.
Sentiment remains firmly bearish and risk-off, which means this rally ain’t really starting yet.
If the pause turns into something more durable, the setup for a real bounce is there.
If Tehran rejects talks and the strikes resume, last week's lows might look wonderful in the rearview.

Around half of major indexes — including Japanese and European gauges — are down at least 10% since the start of the conflict.

Below: Volatility is going sharply higher but is not yet reflecting recession risk.

2. Gold wiped out this year’s gains.

Higher oil prices after the Middle East conflict are adding to inflation concerns and making near-term rate cuts by the US Federal Reserve and other central banks less likely, which is weighing on non-yielding gold.

The correction may offer a buying opportunity for long-term speculators.

3. Fed predicts solid growth but higher short-term inflation.

Meanwhile, several of the Fed’s voting members are sticking with rate cuts.
Miran says it’s too early to alter the outlook for four 2026 cuts.
“The Federal Reserve doesn't need to raise interest rates because inflation is likely to cool in the second half of the year”, said Federal Reserve governor Christopher Waller.
If the economy can weather the storm from the war, Waller said, he would return to advocating for rate cuts later this year.

4. $100 oil won't break the American consumer.

Unemployment is historically low, and, perhaps most importantly, gas and energy account for a historically small share of consumption.
Gasoline and energy goods represented only 2% of total consumer spending in the fourth quarter last year, according to Bureau of Economic Analysis data, the lowest percentage over the past 80 years, outside of the pandemic-distorted period of 2020-21.
True, the latest level of 2% will surely rise if the oil price remains at elevated levels for a sustained period.
But, even then, most Americans should be able to handle it.
As Federal Reserve data last week showed, household balance sheets have rarely been stronger.

5. European stocks will eventually shake off the impact of the Iran war to recapture record highs by year end.

The Stoxx Europe 600 Index will finish the year about 12% higher, according to the median of 16 forecasts.

For now, strategists view the conflict and the spike in energy prices it has caused as temporary factors that won’t derail an acceleration in European economic growth. Meanwhile, worries that central banks will need to raise interest rates in response to surging price pressures are not yet seen as a long-term headwind.
“The dramatic Middle East events will naturally lead to risk-off behavior in the markets in the short term, but if one is to have a time horizon longer than next days/weeks, on 3/6/12 months time frame one should be using the weakness to add into, in our view,” said a JPMorgan team led by Mislav Matejka.

“Military conflicts are of course unpredictable, but we suspect the escalation is unlikely to stick for long given political calendars, and we find the fundamental backdrop as constructive.”

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