The US and Israel-Iran hot war reshapes capital flows! Crude oil, US bonds, and gold surge together — "risk aversion" returns to the stock market

Wall Street turns to “safe haven first” strategy amid Middle East crisis

“Macro traders will adopt the classic ‘risk aversion first, then question’ approach,” said John Briggs, head of US interest rate strategy at Natixis. “The scale of the US-Israel joint military strikes and Iran’s subsequent retaliation could exceed market expectations.”

Briggs added that he expects US Treasury prices to continue their upward trend from last Friday—driven by risk aversion since the pessimistic market sentiment of ‘AI disrupting everything’ since February has kept US bond prices rising, especially with short-term yields dropping to their lowest levels since 2022.

Focus also on energy transportation disruptions and Brent crude oil futures, the benchmark for international oil prices, which are key points for Wall Street strategists. Dave Mazza, senior strategist at Roundhill Financial, said he is closely monitoring the actual transportation situation through the Strait of Hormuz, which carries a quarter of global seaborne oil and LNG trade. Although Iran has not officially announced a blockade, ship tracking shows no oil tanker movements through the strait, with many large LNG and oil tankers either stuck nearby or rerouting around the area.

At least 150 oil tankers (including crude and product carriers) are anchored in the broad waters of the Gulf region near the Strait of Hormuz, according to reports.

Asian buyers—who import about a quarter of their LNG from Qatar, the world’s second-largest exporter—are calling suppliers to inquire about alternative routes. Meanwhile, Egypt is trying to secure ships early, as Israel has shut down most gas fields.

Long-standing routes for LNG shipments to Asia and Europe must pass through the Strait of Hormuz. Ship tracking shows at least 11 LNG carriers heading to Qatar are currently halted to avoid the strait. Smaller exporters like the UAE are also rerouting LNG shipments.

As shown above, US Treasuries and gold have recently surged on safe haven demand, while US stocks have declined sharply; capital flows into safe assets have driven government bonds and precious metals higher.

“This is about macro risks at the Hormuz level, not retaliation. If shipping remains open, stocks can absorb this,” said Mazza. “If not, all risk bets will be invalid.”

The high valuation of global equities and credit markets makes investors more prone to cut risk exposure, said Ed Al-Hussainy, portfolio manager at Columbia Threadneedle Investments. “Since the beginning of the year, risk markets like stocks and cryptocurrencies have been tense due to frequent US tariff policy changes, disruptive AI developments that could ‘upend everything,’ and sell-offs related to private credit.”

“The exact extent of risk aversion is unpredictable,” Al-Hussainy added.

Saudi Arabia’s Tadawul All Share Index opened down nearly 5%, but recovered most of the losses during the subsequent Sunday trading. Meanwhile, Bitcoin, dubbed a ‘risk asset indicator,’ plunged sharply at the outbreak of US-Israel-Iran conflict but soon recovered and traded around $68,000. However, put options on Bitcoin at $60,000 on Deribit are heavily concentrated, indicating ongoing demand for downside protection, with options valued at about $1.87 billion.

Anxiety over a full-scale US-Israel military operation has begun to seep into markets since last Friday. Brent crude oil hit its highest since July 2025, while the S&P 500 fell 0.4%, ending its largest monthly decline since March.

“Barclays’ strategists warn investors not to rush into buying any risk assets during a correction, such as overvalued tech stocks,” said Kevin Gordon, head of macro research and strategy at Charles Schwab. “Investors are used to quick de-escalation of geopolitical conflicts, but this new Middle East episode could last longer.”

Ajay Rajadhyaksha, global head of research at Barclays, noted that “considering potential casualties among US troops, ongoing strikes on Iran’s leadership, and possible disruptions in the Strait of Hormuz, this geopolitical conflict could last longer than previous ones.”

“Potential risks and returns of risk assets like stocks seem less attractive,” he emphasized. “If the stock market corrects more than 10% (e.g., the S&P 500), there could be a modest buying opportunity. But for now, it’s not the time.”

Here is a summary of recent views from major Wall Street institutions and senior strategists:

Kevin Gordon of Charles Schwab & Co. said: “If this conflict causes oil prices to stay elevated, it could trigger short-term inflation fears and disturb the stock market. I believe investors need to differentiate between front-line risks and baseline risks. If the conflict does not significantly impact economic growth or earnings, any negative stock reaction may be short-lived, and buying on dips could still work.”

Vincent Mortier, CIO of Amundi, said: “In the short term, as we wait for clearer impacts, we expect oil prices to rise 5-10%, US Treasury yields to fall (bond prices rise), gold to rise temporarily, and stocks to dip slightly (about 1%). This provides a reasonable profit-taking opportunity near market highs.”

Brendan McKenna, emerging markets strategist at Wells Fargo, said: “This shock will likely weaken emerging markets in the short term,” emphasizing, “Iran’s response appears more aggressive than before, the Strait of Hormuz is essentially closed, and US-Israel military cooperation has become more confrontational toward Iran. These factors, combined with high valuations and overleveraged positions in emerging markets, should trigger early risk asset sell-offs.”

Gregory Faranello, head of US rates at Amerivet Securities, said: “US-Iran military actions could last several weeks. We don’t expect it to drag on too long. Over the past four years, US Treasury yields have fluctuated within a range, and if investors seek safe assets, yields still have room to decline. Ultimately, yields will be driven by the Fed and the economy. This Iran retaliation is unlikely to change the US macro outlook.”

Frank Monkam, cross-asset macro strategist at Buffalo Bay Commodities, said: “The Iran attack over the weekend was almost a perfect catalyst for stock sell-offs, and recent volatility could persist in the short term. However, geopolitical conflicts usually cause temporary risk asset declines rather than prolonged bear markets. Once the Middle East situation is fully digested, stocks are likely to stabilize again.”

Rajeev de Mello, global macro portfolio manager at Gama Asset Management SA, said: “Long-term hostility between US and Iran will first transmit through the oil markets to emerging markets. Most large emerging economies are net oil importers, with energy a significant part of their import bills and inflation baskets. Higher oil prices will widen current account deficits, reduce real incomes, and force central banks to choose between supporting growth and controlling inflation.”

Joe Gilbert, portfolio manager at Integrity Asset Management, said: “Energy stocks and metals will lead risk assets, with real estate and utilities as classic defensive sectors. Due to increased demand for defense and military industries amid new geopolitical tensions, global defense stocks will also attract capital. Non-essential consumer stocks may underperform as higher oil prices hurt airline and retail demand.”

Maxence Visseau, research director at Akvim Investment (Dubai), said: “I expect US Treasuries to initially fall 5-10 basis points,” adding, “But the complexity lies in international oil prices. If crude rises to $80-$90 due to the conflict in Hormuz, long-term US yields will be pulled between safe-haven demand and inflation re-pricing.”

“You might see a steepening of the US yield curve as markets price in the possibility that the Fed will not cut rates further due to long-term inflation from oil prices, pushing breakeven inflation higher. The Fed has been stuck at 3.5%-3.75%, with inflation near 3%. Energy shocks make their job harder and could push them toward a more hawkish stance under new Chair Waller.”

Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management, said: “I expect stocks to fall sharply as market sentiment deteriorates. The main downside risk comes from oil prices.” “If oil remains high, it could impact global growth prospects and inflation data, making it harder for the Fed to cut rates. This could disrupt the recent strong rebound in cyclical stocks. If the oil impact is limited, I see any larger correction as a long-term buying opportunity.”

Madison Faller, global investment strategist at JPMorgan Private Bank, and Erik Wytenus, EMEA investment strategist, said: “These ripple effects from the conflict could quickly spread through the global economy and financial system. Energy is at the core of all these risks, with the Middle East being the key hub for global oil and gas flows. Even potential disruptions can rapidly impact production costs, consumer prices, monetary policy expectations, market sentiment, and broader growth and inflation outlooks.”

“While we remain constructive on risk assets this year, these events highlight the fragility of the global economic order. Building resilient portfolios—including gold and strategic manufacturing sectors like advanced chips for AI, storage, packaging, semiconductors, and defense—has never been more important.”