Despite the Iran War, U.S. Stock Market Holds Up; Future Outlook Remains Divided

Global MSCI Index Drops About 10% Excluding the U.S.
U.S. Index Declines Only 5.4%

New York Stock Exchange. Photo by Yoonju Hwang

Contrary to predictions earlier this year that global stock markets would outperform the United States, assessments now say that the Iran war has triggered a return of capital flows to the U.S. The surge in international oil prices caused by the Iran war has led the U.S. stock market, as one of the world's largest oil producers, to become a safe haven, according to analysts.

According to the Wall Street Journal (WSJ) on March 22 (local time), the global MSCI Index, excluding the United States, has fallen by around 10% since the outbreak of the Iran war. In contrast, the U.S. index has only declined by 5.4%.

The WSJ cited the fact that the United States is an oil-producing nation as a key reason for the relatively smaller decline in U.S. indices. The country has been relatively shielded from the shock of soaring energy prices caused by the war. Additionally, the solid earnings of U.S. companies have helped the U.S. stock market maintain its status as a safe asset.

The main variable for the markets is the Federal Reserve's monetary policy. After the March Federal Open Market Committee (FOMC) meeting, there has even been speculation that the benchmark interest rate could be raised by the end of the year. Donald Calcagni, Chief Investment Officer at Mercer Advisors, said, "The market is urgently recalibrating and trying to assess how long this situation (the Iran war) will last."

Market experts are divided on the outlook for the future. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, analyzed, "The rise in energy prices will eventually force a resolution of the Middle East conflict, and I expect the outlook for global equity themes to recover."

Bill Fitzpatrick, Portfolio Manager at Logan Capital, also noted, "The price-to-earnings ratio for overseas stocks is at 13 times, about half the level of the U.S., and the dividend yield is about 4%," indicating that a diversification strategy into global equities remains valid. He added, "To withdraw our outlook on global equities, it would take a truly severe situation where international oil prices remain above $100 for a prolonged period."

On the other hand, Michael Rosen, Chief Investment Officer at Angeles Investment Advisors, said, "If the Middle East conflict subsides, we are still likely to maintain our exposure to global markets, but for now, it has become almost impossible to make confident decisions," adding, "We are truly in a very neutral position, just watching to see which path this war will take."

Michael Green, Chief Market Strategist at Simplify Asset Management, pointed out—citing the KOSPI—that some of the optimism about global equities was never justified by fundamentals in the first place. He said, "Korea is heavily dependent on natural gas imports and shares a border with an emboldened North Korea," adding, "I do not believe that this optimism about global equities is sustainable."

This content was produced with the assistance of AI translation services.