Yardeni Research told clients in a note on Monday that financial markets are exhibiting an unusual degree of composure despite an intensifying conflict in the Middle East, suggesting that investors are effectively betting on a short-lived war even as the situation deteriorates.
The firm observed that "the energy and financial markets are taking the war in the Middle East remarkably well, all things considered," and that investors "seem to believe that the war will be short-lived." That apparent confidence comes amid several developments that Yardeni views as signs of escalation.
Yardeni pointed to comments from President Donald Trump, noting the lack of a firm timeline for the conflict and a remark in which he said he would know the war was over when he "feels it in his bones." The firm suggested that this posture has contributed to increased volatility.
Despite these tensions, several key market indicators remain contained. The note highlighted that oil prices are elevated but still below the peak seen in 2022, the S&P 500 is down only about 5% from its January record, and gold is "marking time around $5,000." These measures, in Yardeni's view, help explain why markets have not yet shown widespread panic.
At the same time, Yardeni warned the war appears to be intensifying on multiple fronts. The research brief lists repeated drone and missile attacks, the laying of naval mines, and statements by Iran claiming it has "full and intelligent control" of the Strait of Hormuz. The United States has countered with large-scale strikes, which President Trump described as "one of the most powerful bombing raids in the history of the Middle East." These actions underscore the potential for further escalation.
Yardeni suggested that part of the market's calm may reflect signs that an effective blockade of key shipping routes is "not as dire a development as widely feared." The firm noted oil appears to be "leaking" into global supply through a combination of bypass pipelines, emergency releases from strategic reserves, and selective safe-passage agreements with buyers in China and India. If these supply channels hold, they may mitigate some of the immediate energy shock traders feared.
Nonetheless, the research note stopped short of declaring the risks resolved. Yardeni said it hopes the less dire supply outcome proves to be the case and indicated that this possibility might explain why energy and financial markets have not moved into crisis mode so far. The firm also emphasized that the situation remains fluid and that further deterioration could change market dynamics quickly.
Clear summary
Yardeni Research finds markets unusually calm in the face of a worsening Middle East conflict. Investors appear to be pricing in a short war, with elevated but contained oil prices, a modest pullback in equities, and limited movement in gold cited as evidence. The note highlights repeated attacks, naval mining, assertions of control over the Strait of Hormuz, and major U.S. strikes as sources of continued uncertainty.