MW How one Bank of America strategist says investors should trade the Iran conflict
By Jules Rimmer
A recovery in risk appetite is likely in March, so long as the Iranian conflict is contained, says Michael Hartnett
If the Iranian conflict is short-lived then Michael Hartnett foresees a resurgence in the inflation boom trade.
Sell oil if it breaks $90, fade the dollar rally if its index pierces 100 and buy the long bond if it hits 5%.
These are the three key pillars of the trading framework Bank of America's Michael Hartnett recommends investors use to navigate their way through the current geopolitical turbulence.
On Friday, oil and the dollar were closing in on those targets - the Brent (BRN00) contract was over $89 and the dollar index DXY was at 99. The 30-year yield BX:TMUBMUSD30Y is a way off at 4.76%.
In his weekly flow show research note, the chief investment strategist explains why he thinks March will witness a de-escalation of the Iranian war: politics. With Trump's approval ratings on the economy and inflation languishing at 40% and 36% respectively, logic argues that the White House will not want a prolonged spike in the oil price which has already forced gasoline prices to jump 15%.
If the war is mercifully short and risk appetite troughs in March, as Hartnett and team expect, then the bid for what he refers to as the inflation boom beneficiaries should reassert itself. These feature the commodities complex, international stocks ACWX and emerging markets EEM.
Hartnett warns, however, that without investors adopting bearish positioning and without central banking policy panic, then any recovery in markets might be hard work. Hartnett also reckons a resurgence in Trump's approval ratings is necessary for meaningful improvement in risk assets.
For risk assets to bloom, the markets probably require an improvement in Trump's polll ratings, says Bank of America's Hartnett.
There are other conditions highlighted that need to be in situ at this point for a stock market rally to develop.
It requires the oversold assets like software stocks IGV, the Mag7 MAGS, bitcoin and private credit to bottom and for the overbought, such as gold (GC00), metals, semiconductors SOX, emerging markets and European equities to correct. This positioning realignment would facilitate a better starting point for a rally but for the light to flash green, then the current bidding up of oil and the dollar need to subside.
The warning is clear, though: Hartnett's recommendations are dependent on the conflict being contained and short-lived. If Iran escalates and the war broadens out across the region forcing oil above $100, then an oil price shock is coming.
One aspect of the dollar index being driven back up toward 100 is it persuades Hartnett that rate cuts are less likely. In the last few weeks the U.S. Treasury yield curve has flattened and is starting to price out any Fed easing in the remainder of this year.
Hartnett also suggests that one other signal indicating to traders that the market has flushed out excess bull positioning would be a drop in the S&P 500 SPX index below 6,600.
One feature of markets at present that Hartnett does find encouraging is the signs that the capital expenditure associated with the development of AI architecture might have peaked, evidenced by Nvidia (NVDA) telling investors its putative $100 billion investment in OpenAI is "no longer on the cards." Any deceleration in that exponential capex growth will afford credit markets relief and may alleviate some of the risks around a "credit event," he said.
-Jules Rimmer
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(END) Dow Jones Newswires
March 06, 2026 09:17 ET (14:17 GMT)
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