The market gyrations over the Iran conflict are starting to feel a bit like “Liberation Day” – and that could be a good thing.
Last April, Wall Street’s initial fears about Trump’s tariffs proved overdone, as sold-off stocks soon bounced back in an epic market recovery. Now, several top financial executives tell me they are taking a deep breath on the Iran-war – and factoring in a better outcome, as evidenced by the yo-yoing yet not totally nosediving Dow.
Predicting the outcome of a war is risky business, of course. Even glass-half-full investors are planning, as the head of one major financial institution put it, for a situation that is “binary” – meaning that things also could go terribly wrong.
Possible scenarios are manifold. The risk remains for a significant loss of Americans on an overseas base or an aircraft carrier sent to the region. That could mean that all bets are off on President Trump’s “no boots on the ground” pledge. The result could be a conflict lasting longer than a few weeks, leading to a nasty spike in oil prices, inflation, and tanking markets.
That was the fear during Liberation Day, before the Trump administration used the shock-and-awe of his tariff pronouncements on global markets to cut more benign trade deals that pared the initial steep losses in asset prices and then some.
On The Money has been a skeptic of Trump’s tariff regime, but I must admit his quick pivot away from market-crushing levies toward trade deals, even with our archenemy China, showed the world Trump is no ideologue and willing to improvise and compromise when he has to.
That’s the general feeling from a group of C-suite types at financial firms that I polled on Iran in recent days. They too have seen the market zigzags, but they’re taking a more nuanced approach to navigating markets; rather than selling everything, they’re holding and strategically buying at least for the moment.
One big reason: While they believe Trump is in this to win it, he never sets unrealistic goals on anything, his approach to tariffs prove just that. He would love regime change in Iran after we killed the top mullah, the murderous Ayatollah Ali Khamenei, and many of his henchmen. But based on experience they think Trump is no absolutist. He could also make do with a weakened Iran once its army is decimated, its nuclear capacity is obliterated and dissidents are no longer hunted down and murdered.
They also think he will cut a deal that creates a situation far better than what we have now: A rogue nation funder of terror and the military ambitions of China and Russia.
So even after weeks of wobbly markets, here are the benefits the smart money says could be coming our way:
- A lot more energy out of Iran – and not flowing surreptitiously to the Chinese or the Russians. Prices will drop, interest rates will normalize and the markets will continue their upward trajectory as traders factor in a peace dividend we haven’t seen since the fall of the Soviet Union.
- The expansion of the Abraham Accords to include Saudi Arabia and other Gulf states now that their main regional foe has been neutralized. That will translate into more political and economic stability in the Middle East. With the main financier of terror out of the way, what’s to stop Gaza from becoming an enterprise zone flooded with economic development dollars?
- Iran being welcomed into the free-world’s economy. Yes, Iran is more than oil and the mullahs. It’s a country of 93 million people, most of them highly educated despite being oppressed for decades by a ruthless, insane religious-fanatical minority. Its rogue-nation status has left this once modern culture and economy in shambles. If new leadership proves more moderate – or, alternatively, is toppled by one of the moderate factions vying for control – Iran might just become a business partner instead of an enemy.
I know this all sounds optimistic, and lots can go wrong in the days and weeks ahead making the other part of the binary situation more likely. But I’m only as good as my sources who get paid to think past the daily market ructions. They like Trump’s chances on this one and the potential economic boom it could create.
