So here's a thought: what if the scary geopolitical event that's got everyone watching the news turns out to be... not that scary for markets? That's essentially the case veteran strategist Ed Yardeni is making.
In a recent interview, the president of Yardeni Research laid out what he calls a "short war scenario" for the current conflict involving Iran. His take? It could all be over in a matter of weeks. "Iran has lost, however, they haven't realized that yet," Yardeni said, adding that their military command system has been "annihilated."
In his ideal—and admittedly optimistic—outcome, the war wraps up within a month. That could trigger a regime change in Iran, new policies, and a meaningful drop in the geopolitical risk premium that's been hanging over the Middle East for years. It's a best-case scenario that would make a lot of investors breathe easier.
Of course, the path of war is never straight, and Yardeni maps out the very different forks in the road for the energy market and the economy.
In his short war scenario, he projects oil prices would "plummet sharply" due to a surplus. The fear premium evaporates, and crude gets cheaper. The flip side is grim: if the conflict drags on, or if Iran morphs into a persistent terrorist state, it could keep threatening the global economy. A drawn-out war could spike oil prices, potentially re-igniting inflation and even tipping the economy into a depression.
That latter path would put the Federal Reserve in a terrible bind. They'd be stuck trying to balance hiking interest rates to fight inflation against cutting them to stimulate a weakening economy. It's the kind of policy nightmare central bankers have nightmares about.
So, with all this uncertainty, what's an investor to do? Yardeni's advice is straightforward: stay with stocks. He suggests that some of the market sell-offs driven by war fears could actually present buying opportunities. It's a classic "be fearful when others are greedy" play, but applied to geopolitics.
