As tensions between the U.S. and Iran intensify, investors are wondering whether buying on the cusp of war will work. The old Wall Street adage, “Buy the cannon, sell the bugle,” suggests that traders may rush to buy stocks in response to war headlines, hoping for a rebound. But Deutsche Bank said the question this week is whether oil and gas prices could rise high enough to hurt growth and derail a trade recovery. “We have previously written that geopolitical events do not typically provoke a sustained market reaction,” Henry Allen, a London-based strategist at Deutsche Bank, said in a letter to clients on Tuesday. “But the exception is when geopolitical events have macro channels that affect markets, and events in Iran are a prime example of that.” Oil prices soared after the US attacked Iran on Saturday. Concerns over future supplies deepened after Iran pledged to close the Strait of Hormuz, a key route for 20% of the world’s oil and liquefied natural gas shipments. Still, Allen said West Texas Intermediate oil prices are still below their 2024 average so far, and the rate of increase is lower than the crisis levels seen when Russia invaded Ukraine in 2022 and during the two Gulf wars. The strategist said certain factors would need to be in place for the S&P 500 to fall more than 15% if there were another spike in oil prices. Allen said at least one of those three conditions would need to be met, none of which have worked so far: a sustained increase in oil prices of at least 50% to 100% for several months; Rising oil prices could push an already cooling economy into recession or a significant slowdown. Central banks come up with hawkish policy responses to rising oil prices. “The key question over the next few days is whether any of those boxes will be checked,” Allen said. .SPX 5D Mountain S&P 500, 5-Day Chart The S&P 500 rebounded dramatically during the day on Monday, ending the day slightly higher. But as the war escalated, the composite index fell by as much as 2.5% early Tuesday before recovering. Some on Wall Street see the recent volatility as an opening for investors. Jonathan Krinsky, chief market technologist at BTIG, referred to the old adage, “When a missile is coming at you, it’s time to buy.” “Sharp geopolitical moves are typically not sustained,” Krinsky said in a letter to clients, adding that turbulent market movements “are more likely to be a tactical opportunity to buy than sell at the index level.”
