Investors are relatively optimistic about the war, underestimating the extent to which a war with Iran could trigger global economic turbulence, says Antonio Gabriel, an economist at Bank of America Securities.
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“While a quick resolution to the conflict is certainly possible, we believe that extending the conflict into the second quarter is an equally likely scenario, and a longer war cannot be ruled out” a Bank of America analyst wrote in a note on Monday. “However, markets appear to be pricing in a largely temporary shock.”
The S&P 500 index fell only about 4%. from its all-time high, which the economist sees as evidence that investors are relatively optimistic about the war — even as inflation concerns have made investors cautious about how much the Federal Reserve will cut interest rates this year.
War in the Middle East. “The destructive scenario is underestimated”
“In our view, markets are mainly focused on inflation, while more disruptive scenarios for global economic growth may be underestimated” wrote a Bank of America analyst.
With the war's uncertain trajectory, Wall Street is trying to determine how the conflict will ultimately affect stocks. For now, strategists from Goldman Sachs Group Inc. and Morgan Stanley remain bullish on the stock, pointing to support from earnings growth and less inflated valuations.
The price of oil may even exceed $146. Analysts paint a worst-case scenario
Meanwhile, at RBC Capital Markets, Helima Croft, head of global commodity strategy, increased the forecast for the duration of the conflict and its impact on oil prices.
“Expanded U.S. war goals, as well as Iran's asymmetric capabilities and desire to restore deterrence, could extend the conflict into the spring,” she wrote.
“We believe we will exceed the 2022 post-Russian invasion of Ukraine oil price highs of $128 per barrel if the war lasts another three to four weeks with minimal progress on maritime security, and that we will exceed the 2008 high of $146 per barrel if it lasts a few more months.”
The price of American WTI crude oil is approximately $94 on Monday evening. per barrel, and the price of Brent crude oil is approximately USD 101. per barrel. Before the US and Israel attacked Iran, the raw material cost approximately USD 65-70.
Source: Bloomberg
