Global Markets' Resilience Amid Iran-U.S. Tensions: Why Equities Are Poised to Outperform Despite Near-Term Volatility

The recent escalation of U.S.-Iran tensions has sparked fears of a full-blown geopolitical crisis, with markets initially reacting to the risk of supply disruptions and inflation spikes. Yet, equities have shown remarkable resilience, underscoring the bull market's ability to weather near-term volatility. Technical analysis and historical precedent suggest that while short-term swings are inevitable, the broader trajectory for equities remains upward—provided the conflict stays contained.

### Technical Analysis: Markets Have a History of Bouncing Back

History reveals that equity markets typically rebound swiftly after geopolitical flare-ups. For example:
- During the 1990 Gulf War, the S&P 500 fell just 3% in the month of the invasion but gained 22% by year-end.
- Post-9/11 attacks, the S&P 500 dropped 12% over two weeks but recovered all losses within six months.
- Even the 2022 Russia-Ukraine invasion saw equities stabilize within months despite energy shocks.

Currently, the S&P 500 remains within 3% of its February 2025 highs, and key technical indicators suggest underlying strength. The index is holding above its 200-day moving average—a critical support level—and RSI readings remain neutral (around 55), indicating no extreme overbought conditions. This aligns with analysts' expectations of a short-lived dip followed by a recovery.

### Market Sentiment: Calm Amid Chaos
Despite the headlines, investor sentiment has not collapsed.
- The CBOE Volatility Index (VIX) spiked to 22 on June 21—well below its 2020 panic peak of 82—and has since retreated to 18.
- Fund flows data shows equity ETFs attracting $12 billion in the week of June 19, while investors pulled only $1.5 billion from commodities.

This muted reaction reflects a market that has priced in the risk of escalation but also recognizes the limits of Iran's retaliation. As Marko Papic of Macro Intelligence 2.0 notes, “The Strait of Hormuz is a double-edged sword for Iran—shutting it would cost them $4 billion monthly in lost oil revenue, making it a self-defeating move.”

### Defense & Cybersecurity: The Bulls' New Best Friends

While geopolitical risks loom, specific sectors are thriving. Defense contractors and cybersecurity firms have become pillars of resilience:
- Raytheon Technologies (RTX): Up 15% in Q2 2025, driven by demand for its NASAMS air defense systems.
- Lockheed Martin (LMT): Gained 9% this quarter, fueled by contracts for F-35 jets and THAAD interceptors.
- CrowdStrike (CRWD): Cybersecurity leader with 30% revenue growth in 2024, as firms bolster defenses against state-sponsored attacks.

These stocks are benefiting from a secular shift toward military modernization and digital protection, making them durable holdings even if tensions ease.

### Why Equities Will Outperform: The Bull Case
1. Contained Geopolitical Risks:
- Iran's options are constrained by economic weakness (20% unemployment) and the risk of overreach. A full-scale conflict is unlikely, as U.S. and Israeli dominance in conventional warfare limits Tehran's choices.
- The Strait of Hormuz remains open, keeping oil at $75–80/bbl—painful but not catastrophic for global growth.

2. Fed's Backstop:
- Despite rising oil prices, the Fed's focus on labor markets and core inflation (excluding energy) means rate hikes are unlikely. Low rates keep equities attractive relative to bonds.

3. Equity Fundamentals:
- S&P 500 earnings for 2025 are still expected to grow 8%, driven by tech and healthcare. Even if oil prices rise to $100/bbl, the drag on consumer spending would be offset by fiscal stimulus and resilient services sectors.

### Investment Strategy: Ride the Bull, Hedge Selectively
- Overweight Equities: Maintain exposure to the S&P 500 and Nasdaq. Use dips to buy quality names in industrials, tech, and healthcare.
- Defense & Cybersecurity Plays:
- ETFs like the SPDR S&P Aerospace & Defense ETF (XAR) (+22% in 2024) offer diversified exposure.
- Hold CrowdStrike (CRWD) and Palo Alto Networks (PANW) for cybersecurity exposure.
- Hedge with Selectivity:
- Pair equities with a small allocation to U.S. Treasuries (TLT) to dampen volatility.
- Avoid over-hedging—allocate no more than 5% of portfolios to inverse oil ETFs (e.g., DNO) or gold (GLD) to guard against extreme scenarios.

### Conclusion
The Iran-U.S. conflict has introduced noise but not a systemic crisis. Technicals, sentiment, and sector dynamics all point to equities weathering the storm and continuing their ascent. While near-term volatility is inevitable, the bull market's durability hinges on the conflict's containment—a scenario supported by Iran's economic fragility and the U.S.-Israel military edge. For investors, this is a time to stay disciplined, focus on long-term trends, and let the bulls carry the weight.