The escalating conflict between Israel and Iran has heightened fears of a potential World War III, injecting uncertainty into global markets.
Both nations have exchanged missile strikes and retaliatory attacks, drawing global attention to how the Middle East tensions might impact the world economy.
This geopolitical turmoil has contributed to increased volatility in the stock market, with investors responding to the elevated-risk environment.
Initially, markets closed in the red on Friday but have since shown signs of stabilizing as diplomatic efforts intensify, hinting at a potential de-escalation.
In this context, insights from financial commentary platform The Kobeissi Letter, shared on June 16, suggested that fears of a global war may be overblown, according to market signals.
Signs of WW3 onset
Historically, the onset of a major conflict triggers a sharp flight to safety, sending equities tumbling while assets like gold and oil surge. However, current market behavior tells a different story.
According to The Kobeissi Letter, if we were truly on the brink of global war, the S&P 500 would likely be down over 30%, gold would have surged past $5,000 an ounce, and oil prices would be above $100 per barrel.
The platform argued that in a worst-case scenario, with a 90% chance of war, the S&P could plunge over 50%, with gold hitting $10,000 and oil spiking to $200.
Instead, oil dropped more than 10% from its June 15 overnight highs and is now down 15% from last week’s peak. This pullback came after reports that Iran is seeking to de-escalate tensions with both the U.S. and Israel, further reinforcing the market’s bet on diplomacy over disaster.
As of press time, the benchmark S&P 500 index was trading at 6,024, up 0.80% on the day, and recording modest weekly gains of around 0.25%.
Meanwhile, gold is experiencing a short-term correction amid de-escalation headlines, trading at $3,384, down 1.4%. Analysts attribute this drop primarily to profit-taking but maintain that if geopolitical uncertainty persists, gold could still target the $4,000 mark in the coming months.
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