The Iran conflict isn't panicking investors - yet. That's about to change.

MW The Iran conflict isn't panicking investors - yet. That's about to change.

By Joseph Adinolfi

Credit spreads haven't blown out, the oil-futures curve isn't pointing to a lasting supply shock, and the S&P 500 has so far avoided a correction

Financial markets have so far held up reasonably well despite the disruption to the global energy trade caused by the Iran conflict. But that could soon change, according to several Wall Street professionals who spoke with MarketWatch.

U.S. stocks have been stuck in a steady grind lower since the start of the Iran conflict in late February. But many on Wall Street are surprised that markets haven't fallen even further.

That applies not just to stocks, but to bonds as well. Corporate credit spreads - one of the most closely watched market barometers of economic stress - have remained relatively tame. At the same time, market-based gauges of investors' long-term inflation expectations point only to a modest pickup in long-term price pressures.

Investors seem complacent about the long-term risks to markets and the economy from here, according to several professional investors who spoke with MarketWatch. Yet that could start to change in the coming weeks as energy supply shortages in Europe and Asia grow more acute. Even if a deal is reached that causes the conflict in Iran to dramatically de-escalate, there are doubts that oil prices will immediately revert lower.

"I wouldn't say we're overly enthusiastic about the market here, but given the headline risk and what could happen, it doesn't make sense to be overly defensive quite yet," said Warren Pies, co-founder and chief strategist at 3Fourteen Research, in an interview with MarketWatch on Tuesday. "I'm not ready to buy the dip right now. Hug your benchmark, is what I'd recommend."

Even crude-oil prices are signaling that the disruption to global energy markets caused by Iran's attacks on regional refining and production infrastructure - as well as its decision to choke off the flow of tanker traffic through the Strait of Hormuz - will be relatively short-lived. The chart below shows the futures curve for U.S.-traded crude prices.

Pies cautioned that the oil-futures curve shouldn't be interpreted as a forecast for where spot prices are expected to sit down the road. Instead, a more helpful framework is to interpret the curve as a signal to help traders and end users of oil manage their inventories.

Still, the wide gap that has opened up between contracts expiring in the coming months and those expiring further out suggests that a degree of complacency about the supply picture has likely seeped into the market, Pies said.

But as investors wait for President Trump to strike a deal to extricate the U.S. from the conflict in Iran while restoring the flow of traffic through the Strait of Hormuz, some on Wall Street cautioned that time is quickly running out.

"There are a lot of folks talking about mid-April as something of an end date. If we don't see a resolution by mid-April, that will ultimately result in strains in production into the longer run," said Gina Martin Adams, chief market strategist at HB Wealth, during a Tuesday interview with MarketWatch.

Confidence or complacency?

Investors across Wall Street have been wondering why stocks in particular have held up so well since the start of the conflict. As of Tuesday's close, the S&P 500 SPX was trading about 5% below its January record high, FactSet data showed.

That question seemed particularly relevant on Tuesday. As the evening deadline for Trump's latest ultimatum to Iran approached, U.S. stocks struggled for direction. But, like much of the trading action since the conflict began, any declines have been relatively subdued. The S&P 500 even ended 0.1% higher on the day after a choppy, headline-driven session.

"Markets have been remarkably calm given the Iran situation and the implications for global energy flows," said a team of macro strategists at Mizuho Securities, in commentary shared with MarketWatch via email on Tuesday.

"So what's going on? It's probably a mix of complacency and confidence. Investors aren't ignoring the risks, but they're clearly leaning on history," the Mizuho team noted. Previous oil price shocks that followed the start of the first Gulf War, the U.S. invasion of Iraq and Russia's invasion in Ukraine taught investors that energy markets can recalibrate more quickly than the headlines might suggest.

"Net result: Investors feel insulated, rightly or wrongly. That's why we're seeing muted reactions as we head toward tonight's deadline - not because the risks aren't real, but because markets are increasingly conditioned to look through them," the Mizuho team continued.

The fact that the so-called fundamentals appear to be holding up also has helped to serve as a buffer for markets. The strength of the underlying economy usually influences both credit markets and stocks.

Official data released for March have so far shown that the U.S. economy held up reasonably well during the opening weeks of the conflict. Far more jobs were created last month than economists had expected, according to Friday's update from the Labor Department. That said, it is still early, and investors will receive an update on inflation later this week that could spur some volatility if the numbers are stronger than expected.

Following Trump's "liberation day" tariff announcement last April, Wall Street analysts moved quickly to lower their earnings forecasts, while strategists scrambled to slash their year-end price targets for the S&P 500. But after markets swooned, Trump turned around and walked back some of the tariffs. That helped teach investors and Wall Street analysts a lesson they won't soon forget, said 3Fourteen's Pies.

This time around, analysts have been much more careful about embracing a darker outlook. Over the past month, they have mostly maintained or raised their forecasts for how much money major publicly traded companies are expected to earn in profits, both during the first quarter and for 2026 as a whole.

Optimistic guidance from corporate management has also played a role, as more companies have issued positive guidance for the first quarter than negative guidance, according to FactSet analyst John Butters.

But more recently, analysts' upgrades have mostly focused on two sectors: information technologym which is more insulated from an energy-driven price shock, and energy, which tends to benefit from higher oil and gas prices.

"Outside of the energy space, analysts are mostly sitting on their hands, waiting until the next earnings season to get a better picture of the impact," said Bob Elliott, a former executive at hedge fund Bridgewater Associates and co-founder of Unlimited Funds, during an interview with MarketWatch on Tuesday.

But as companies start to report results, analysts could start to lower their expectations for the balance of the year.

"You're not going to meaningfully adjust your estimates until you get guidance from the company," Elliott said. "But they might update their views after."

Stocks ended Tuesday largely unchanged, with the S&P 500 and Nasdaq Composite COMP eking out modest gains. The Dow Jones Industrial Average DJIA wasn't so lucky; it finished in the red, although it was down by less than 100 points.

U.S.-traded crude-oil prices (CL00) (CL.1) (CLK26), meanwhile, were still trading above $110 a barrel on Tuesday, based on the May contract for West Texas Intermediate crude.

-Joseph Adinolfi

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April 07, 2026 18:13 ET (22:13 GMT)

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