U.S. involvement in the Israel-Iran conflict was expected to be a major geopolitical turning point. On the contrary, following U.S. strikes on Iranian nuclear facilities, investors and markets have remained largely composed, whereas normally, such events would trigger a rush into safe-haven assets.
Markets have reacted far less aggressively to the U.S. strikes, especially when compared to Israel’s strikes on Iran just over a week ago.
What Does This Mean for the Markets?
Even though the latest development in the conflict is significant, industry experts agree that they do not pose a systemic threat to global markets. According to Dan Ives, managing director at Wedbush, the escalating conflict in the Middle East is expected to be isolated to the region, while making the region more stable as the nuclear threat is neutralized, as quoted on CNBC.
According to strategists at Morgan Stanley, as quoted on Yahoo Finance, market selloffs triggered by geopolitical events tend to be short-lived.
Per Morgan Stanley, past geopolitical risk events have triggered short-term volatility in equities, but historically, the S&P 500 has posted average gains of 2% after one month, 3% after three months and 9% after a year following such events.
In response to U.S. strikes, Iran has limited options, one of which includes the potential closure of the Strait of Hormuz. According to Iranian state media, as quoted on CNBC, Iran’s parliament approved the closure of the Strait of Hormuz. This would not be an ideal scenario for the global economy as oil prices would rise sharply and drive broader inflation. However, this remains highly unlikely.
According to CNBC, the threat to shut down the Strait of Hormuz has been a recurring element of Iran’s rhetoric, but it has never been carried out, with experts saying it remains an unlikely scenario.
ETFs to Explore
Investors can consider increasing their exposure to funds tracking major indexes like the S&P 500, providing them with the growth potential of the market, as well as diversifying their portfolio.
According to Morgan Stanley strategists, a weaker dollar and improving earnings growth are supporting U.S. markets, as quoted on Yahoo Finance. In such an economic environment, investors should keep a long-term investment horizon and look past short-term market fluctuations.
Investors can consider Vanguard S&P 500 ETF VOO, SPDR S&P 500 ETF Trust SPY, iShares Core S&P 500 ETF IVV, SPDR Portfolio S&P 500 ETF SPLG and Invesco S&P 500 Equal Weight ETF RSP.
VOO, SPY and IVV are among the largest funds in the United States, with VOO having the largest asset base of $681.56 billion, followed by SPY and IVV, with an asset base of $604.78 billion and $574.05 billion, respectively.
Both VOO and IVV are the cheapest options and more suitable for long-term investing, charging 0.03%, and sporting a Zacks ETF Rank #1 (Strong Buy). With a one-month average trading volume of about 73.88 million shares, SPY is the most liquid option, offering investors easier entry and exit while minimizing the risk of significant price fluctuations, ideal for active trading strategies.
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SPDR S&P 500 ETF (SPY): ETF Research Reports Vanguard S&P 500 ETF (VOO): ETF Research Reports Invesco S&P 500 Equal Weight ETF (RSP): ETF Research Reports iShares Core S&P 500 ETF (IVV): ETF Research Reports SPDR Portfolio S&P 500 ETF (SPLG): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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