Stock Market Flinches On Widening Middle East War

Stock prices and bond yields dipped while oil prices jumped this morning. In Washington, a senior White House official said the US is actively preparing to defend Israel against another direct missile attack by Iran. The official added that such an attack would carry severe consequences for Iran, which is under pressure to retaliate for recent Israeli military actions against Hezbollah, its proxy in Lebanon. The markets' initial reactions moderated by early afternoon after what seems to have been a limited strike on Israel by Iran with no serious casualties.

A widening Middle East war has been our number one risk scenario over the past year for the bull market in stocks. For now, we are sticking with our subjective probabilities: 50% Roaring 2020s, 30% 1990s-style meltup, and 20% reprise of geopolitical turmoil reminiscent of the 1970s. As we've often noted in the past, geopolitically-induced selloffs tend to be buying opportunities (chart).