Financial markets have experienced significant turbulence since the outbreak of war in Iran late February, with one research firm warning that investors have yet to encounter what they describe as “peak panic.” Alpine Macro anticipates a period of escalating tensions in the Middle East, despite statements from President Donald Trump suggesting Iran may be interested in negotiating a resolution.
Dan Alamariu, Alpine’s chief geopolitical strategist, conveys a cautious outlook, expecting the conflict to escalate before any de-escalation occurs. “Peace is not ‘at hand’ yet,” he stated, suggesting that the peak of market panic is still imminent, estimated to arrive in the next couple of weeks. He notes that the diplomatic overtures from both Trump and Iranian leaders appear to be largely superficial in nature.
In light of this ongoing volatility, Alamariu outlines several strategies for investors aiming to protect their portfolios from further market fluctuations. His recommendations include:
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Investing in Energy: Given the current situation, Alamariu advises taking long positions in energy investments as the market approaches peak panic. He highlights the instability of oil prices, particularly due to the closure of the Strait of Hormuz, a vital route for global oil shipments. He anticipates that oil prices will likely rise before facing a downturn, with peak prices aligning with peak market hysteria in the coming weeks.
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Buying Beaten-Down Stocks: As panic begins to subside, Alamariu encourages investors to look for opportunities in struggling equities, particularly outside the United States. He recognizes the resiliency of the S&P 500 but points to potential bargains in Asian, Gulf Cooperation Council (GCC), and European markets. He suggests that the conclusion of the conflict could lead to a significant rebound in these equities.
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Increasing Treasury Exposure: Alamariu also sees merit in increasing exposure to US Treasurys, particularly longer-duration bonds. While he acknowledges that US government debt may not serve as a hedge against geopolitical risk, it can provide protection against a potential economic downturn. He warns that an extended conflict combined with persistently high oil prices could suppress economic growth, thereby increasing the likelihood of a recession. Historical trends support his view, indicating that bond yields tend to decline sharply following the resolution of oil shocks.
As uncertainty continues to loom over global markets, investors are urged to consider these strategies to navigate the challenges posed by the ongoing crisis in Iran and its potential ramifications on the financial landscape.
