Geopolitical instability has marred 2026 — Venezuela, Greenland, and now Iran — but some on Wall Street believe investors aren’t overly concerned about the latest conflicts. Earlier this year, when the US conducted a military operation in Venezuela to capture and depose the country’s leaders, US stocks did not move much. Stocks also recovered from developments surrounding President Donald Trump’s push to take control of Greenland, with the S&P 500 ending the year in positive territory. So was last Monday, the first trading day after the United States and Israel launched attacks on Iran last weekend. The S&P 500 broke off its lows that day and ended just above the flatline. The index has also eased significantly from Thursday and Friday’s lows. At one point Friday, when U.S. crude oil futures hit their highest since 2023, the S&P 500 fell 1.7%. The index ultimately closed down 1.3%. “The initial investor reaction to this war was very muted,” said Jed Ellerbrook, portfolio manager at Argent Capital Management, of the S&P 500 index over the past week. “Investors learn really, really quickly. We’ve seen President Trump make really extreme, extremist demands many times over the last 13 months and then settle for something more reasonable. I think investors are assuming that’s going to happen here as well.” There was certainly a risk-off move last week. Although the CBOE Volatility Index was above 29 and the US Dollar Index posted weekly gains, stocks ultimately ended with weekly losses. Last week, the S&P 500 index overall fell 2%, but that’s still less than 4% from its recent high. Mr. Ellerbrook said stocks would have posted larger losses for the week than they would have if investors had not expected the war to be short-lived. This is even after President Trump said last week that he expects the war with Iran to last four to five weeks but could last “much longer.” “If investors had believed this was a three-month event, the stock market would have been much lower,” Ellerbrook said. Ross Mayfield, an investment strategist at Baird, said markets tend to move away from events that don’t have a “quick resolution” or have a “significant lasting impact,” pointing to Russia’s 2022 invasion of Ukraine as an example of where the market ultimately distanced itself. He worries that the flooding in the region seen this year, in this case the rapid influx of geopolitical developments, could mislead investors in their view of other possible future events, such as those related to tensions between China and Taiwan. “There are so many geopolitical events and very few that end up having a long-term impact on the market, so that could create some complacency in the investor base,” Mayfield said. “The more people who get paid to buy these mini-dips, the more this once-in-a-decade event just becomes a little bit more risky for people.” Focus on Energy An Iran war could change everything if oil prices rise above $100 a barrel, said Sam Stovall, chief investment strategist at CFRA Research. On Friday, U.S. crude oil prices topped $90 a barrel, a weekly increase of 35% and the biggest increase since 1983. Some predict that if oil prices reach $100 a barrel, a move seen after Russia’s invasion of Ukraine, it could lead to a global recession. “This is both a fundamental and a sentiment level, and investors would think that above this we are headed for a much worse path,” Stovall told CNBC. @CL.1 @LCO.1 5D Mountain WTI Crude vs. Brent Crude Prices, 5 Days If oil prices don’t reach that threshold, Stovall said a war with Iran could become what he considers a “ping-pong ball event,” calling the conflict one that markets “must fight, but we can avoid.” A key factor determining the outcome will be that the war’s impact on energy infrastructure will be “relatively limited,” said Matthew Ax, senior strategist for international politics and public policy at Evercore ISI. He believes that if a series of events, such as Iran planting a mine in the Strait of Hormuz, results in permanent structural damage, investor concerns will certainly increase as a result. “Most of what has happened so far, at least in terms of energy, is still very likely to be reversed once the situation calms down,” Ax said. “That’s going to be the standard that I’ll be looking at moving forward.” How to navigate Trump’s moves Due to the uncertainty surrounding the dispute, BCA Research’s Marko Papic warns investors to “remain nimble” and be prepared to take profits given the volatility the situation presents. President Trump said Friday that no deal to end the war would be possible without “unconditional surrender” from Iran, but his chief strategist said he still believes Trump’s use of the exit ramp is valid. “Judging by President Trump’s actions and negotiations to date, and the significant constraints that blocking ships through Hormuz would place on the U.S. economy and markets, and ultimately on President Trump’s legacy, I am confident that President Trump will move toward detente much sooner than most expected,” Papic said. He added that if, for example, the United States were to erode Iran’s nuclear program and ballistic missile capabilities, President Trump could claim within days that the mission in Iran is complete. But the strategist, who has long invested in Brent crude, the iShares U.S. Oil Equipment and Services ETF (IEZ) and the Breakwave Tanker Shipping ETF (BWET), said the president’s own tactics may not work as expected. “President Trump is not here negotiating with Canada or China on a trade deal or with Denmark on a geopolitical conflict,” Papic said. “He’s dealing with a regime that’s been at war and has its back against the wall, so it’s becoming difficult to predict and put Iran at a disadvantage.” Dryden Pence, chief investment officer at Pence Wealth Management, said the conflict could play out over weeks or months. That’s why he’s focused on defense stocks like RTX, Lockheed Martin, and Northrop Grumman. These stocks have gained between 2.1% and 4.4% over the past week. “Every time we launch a rocket or missile, or every time a defense system fails, we just have to pay to replace it,” he told CNBC. “I don’t think the bombing will stop anytime soon.”
