On Saturday night, the US attacked Iran’s three nuclear sites in Fordow, Natanz, and Isfahan.

• Predicting geopolitical developments in the Middle East is a treacherous exercise. Iran has been the biggest state sponsor of terrorism in the Middle East, often using its lethal proxies in Gaza, Lebanon, Syria, and Yemen to do its dirty work. Since 1979, Iran has been the sworn enemy of Israel and the US. The next move is up to the Iranians.

• Our experience has taught us that markets tend to look through the geopolitical headlines as they try to guess second-order impacts (policymakers’ responses, economic and non-economic interdependencies, and the eventual outcome).

• Historically, markets tend to quickly discount the worst-case scenario and rally on “less-bad” news.

• Interestingly, the Israel MSCI stock price index (in local currency) is up 2.6% to a new record high since Friday, June 13 (source: Bloomberg), when Israel launched a preemptive attack on Iran (chart). The Israeli stock market is hinting that we may witness a radical transformation of the Middle East if Iran can be de-nuclearized.

• If true, oil prices may fall after an expected initial spike. The cost of gold is likely to fall in this scenario. However, that should provide a good buying opportunity since many central banks are diversifying their reserves into gold.

• The bottom line is that the bull market that started in October 2022 remains intact for the S&P 500. However, we must respect the technical sell signal that has been in place since April. While we wait for an improved technical backdrop, we note that the consensus of industry analysts is turning more optimistic on the outlook for S&P forward earnings per share. RiskBridge is targeting earnings per share of $265/share (9% y/y) for 2025 and $300/share (13% y/y) for 2026.

• Near-term, RiskBridge anticipates significant market turbulence in July and August, driven by the Treasury’s “X-Date” debt ceiling deadline. This is when the Treasury runs out of funding to keep the government operating. The “X-Date” will force Congress to increase the debt ceiling or face a fiscal cliff before Labor Day. Past debt ceiling debates have been marked by higher volatility and lower stock market prices. We would view another volatility spike and sharp stock market decline as a buying opportunity.

All market data sourced from Bloomberg unless noted otherwise.

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