The conflict with Iran has shaken the markets and challenged core assumptions about how they operate. The events of March demonstrated that US Treasuries do not always provide diversification when stocks decline, as both fell simultaneously, Morgan Stanley notes in its analysis.
The episode also challenged the idea of the US dollar as a predictable "safe haven," as its movements appeared unusually linked to oil prices. Gold did not function consistently as a traditional haven, losing value and moving in tandem with riskier liquid assets.
The turbulence may continue, with investors urged to remain diversified, invested, but also cautious, emphasizing active strategies and additional sources of diversification beyond core bonds where necessary.
From "micro" to "macro" shock
Stocks recorded an upward trend following the announcement of a ceasefire with Iran last week; however, the most substantial message for investors is not this reaction, but what the previous six weeks revealed about market behavior when attention shifts from "micro" to "macro."
Before the war, concerns regarding high technology investments, disruption from artificial intelligence, and risks in private credit created a classic "micro" market. Capital was moving between sectors, there were large discrepancies in stock returns, and stock picking mattered more than a general macroeconomic forecast.
The war drastically changed the landscape. Oil prices skyrocketed, interest rates rose, expectations for Federal Reserve monetary policy became more hawkish, and growth risks intensified. Investors stopped focusing on individual companies and began moving around a dominant theme: the energy shock.
What this period teaches us
Markets seem to be learning to absorb political shocks. Unlike the drop of approximately 20% during the 2025 tariff period, this time the correction was limited to about 9% at the worst moments, showing adaptation rather than necessarily complacency.
Bonds do not always function as a hedge for equities. Their simultaneous decline, amid rising oil and inflation fears, highlighted the vulnerability of strategies based on "stable" correlations.
The US dollar did not function as a traditional safe haven. Throughout most of the conflict, it moved in close correlation with crude oil and retreated more than expected after the de-escalation.
Gold also failed to provide the expected safety. It behaved more like a high-risk liquid asset, as many investors liquidated it to boost their liquidity. The increased participation of gold in central bank reserves means it can be used as a source of cash during times of crisis.
Asymmetric wars can quickly affect markets. The use of low-cost drones and other means can disrupt critical points like the Strait of Hormuz, with direct implications for the global economy.
The geopolitical map is changing. The US appears to be moving more autonomously in negotiations with NATO and Europe, while Russia and China may be strengthening their positions. Iran could gain increased influence in the Straits region, creating new economic realities.
Investment strategy in an environment of uncertainty
The announcement of a ceasefire can trigger a strong upward reaction; however, ongoing negotiations may bring new reversals and conflicting news, maintaining volatility.
Morgan Stanley recommends that investors remain diversified and positioned in the markets, but with heightened risk awareness.
The large divergence in returns between securities favors active management, including hedge fund strategies where appropriate.
Finally, the traditional "60/40" portfolio may struggle when stocks and bonds move in parallel, a fact that makes seeking additional, carefully selected sources of diversification essential.
www.bankingnews.gr
Readers’ Comments