Investors seem to have already put the Iran war in their rearview mirrors, and rightfully so, according to HSBC. Last week, the S & P 500 completely erased its losses since the start of the Middle East conflict. After news of a ceasefire between the U.S. and Iran, the broad market benchmark and the tech-heavy Nasdaq Composite both climbed to fresh all-time highs. Even escalating tensions over the weekend didn’t sour stocks too much on Monday, with the Dow Jones Industrial Average virtually unchanged and the S & P 500 and Nasdaq Composite down about a quarter percent each. .SPX .IXIC 1M mountain S & P, Naz 1M chart But Max Kettner, HSBC’s chief multi-asset strategist, said the past few days’ rally is actually very in line with historical precedence. “As much as the first intuition may be questioning the rally of the last three weeks, we’d note this is entirely consistent with history. If anything, we’d argue the only unusual thing this time around is that after the initial escalations sold off by more and longer compared to what history tells us,” he wrote in a Monday note to clients. “Usually, losses are more than recouped a week after the initial escalation already, with close to 100% hit ratios one month after.” In the same note, Kettner shared a chart denoting the impact of biggest escalations on equities since 1990. Both a week and a month after said conflict, the S & P 500 was on average trading 1% and 2.5% higher, respectively. “One of the most common pushbacks to our extremely constructive view has been that the current Middle East conflict has more severe potential implications than previous geopolitical escalations and other shocks. We’d heavily disagree. The important thing here is that market participants tend to argue with the benefit of hindsight,” Kettner added. In the same note, the strategist emphasized that he currently remains “max bullish equities.” Kettner argued against detractors who maintain that the worst of the conflict is yet to come, highlighting that financial conditions have already eased significantly in the past three weeks, while gas prices are already much lower. Contrary to this weekend’s news, Kettner added that current market sentiment and positioning still sends a buy signal to investors. “The news flow over the weekend certainly hasn’t been encouraging. But these are exactly the sorts of dips one will have to use very quickly in the coming weeks,” he said. “What’s more important, though, is that: 1) the rate of change compared to a month ago is positive; and 2) despite the recent rally across the risk asset spectrum our sentiment and positioning framework still sends a buy signal. In short: be quick.”
