What is the real risk that could trigger a market downturn in the current environment?

1. The market is not truly concerned about the Iran conflict

According to analysts, the conflict in the Middle East has generated initial volatility, but it is not a structural factor that could trigger a major market downturn.

 

Historically:

Geopolitical conflicts or wars rarely create sustained bearish trends.

Markets tend to react with:

• initial sell-offs

• subsequent stabilization

• relatively fast recoveries

 

Historical examples:

• Ukraine war

• Gulf wars

• other geopolitical tensions

 

In most cases, volatility lasts only a few weeks.

According to analysts, the market has no emotions — it only reacts to factors that directly impact the economy.

 

2. What the market is really watching: oil

What truly concerns investors is the Strait of Hormuz.

 

This maritime chokepoint is critical because:

• roughly 20% of global oil supply flows through it

• it is essential for Asia’s energy supply

 

Currently:

• traffic has dropped by approximately 90%

• insurance costs for oil tankers have surged

• some vessels are seeking alternative routes

 

However, there are logistical alternatives:

• Saudi exports via the Red Sea

• UAE ports

• alternative routes for Europe

 

According to the analysis, if the disruption lasts only 3–5 weeks, the market can absorb it without major consequences.

 

 

3. Likelihood of a short-lived conflict

Several investment banks (such as Citi) believe the conflict could last one or two more weeks.

 

Key reasons:

United States

It is not in the U.S. interest to prolong the conflict because:

• elections are approaching

• gasoline prices have a direct impact on voter sentiment

• Trump’s approval ratings on economic issues are weak

Cited data:

• 35% approval on cost of living

• 27% approval on trade policy

A sustained rise in oil prices could cost control of Congress and the Senate.

 

Iran

Iran also cannot sustain a prolonged conflict because:

• it depends on oil exports

• a large share is sold to China

• it cannot afford a prolonged blockade of the Strait

As a result, the most likely outcome is a political resolution where both sides claim victory.

 

 

4. U.S. strategy around oil

According to analysts, the U.S. strategy would be:

• stabilize the conflict with Iran

• end the Russia-Ukraine war

• ease energy-related sanctions

 

This would allow the return of:

• Russian oil

• Iranian oil

• Venezuelan oil

 

If that happens:

• oil prices could drop toward $50 per barrel

• inflation would ease

• economic growth would improve

 

 

5. Conflicts rarely break the market

Major market downturns are driven by internal economic factors, not external ones.

Exogenous factors:

• wars

• political tensions

• diplomatic crises

These typically generate only short-term volatility.

Endogenous factors:

• credit

• the financial system

• economic recessions

These are what actually trigger real bear markets.

 

 

6. The real risk: the credit market

What truly concerns analysts is the credit market.

 

Michael Hartnett (Bank of America) warns:

• if the credit market breaks, equities will follow

 

Observed issues:

• stress in bank loan funds

• suspension of redemptions in certain funds

• rising defaults among smaller companies

• signs of financial misconduct in credit products

 

Some funds have been accused of:

• using the same collateral to back multiple products

• hiding the true level of leverage

 

This echoes what happened during:

• the 2008 subprime mortgage crisis

 

That’s why analysts refer to JP Morgan’s “cockroach theory”:

If you see one cockroach, there are likely many more hiding.

 

 

7. The critical level for interest rates

Another key risk:

• if the U.S. 10-year Treasury yield exceeds 5%, it could trigger a sharp market correction

Why?

• it would tighten financial conditions

• put pressure on leveraged companies

• reduce investment and consumption

 

This factor is far more relevant than geopolitical tensions.

 

 

8. Capital rotation within the market

The market is undergoing a strong sector rotation.

Capital is flowing out of:

• technology

• certain AI-related companies

And into more cyclical and traditional sectors:

• industrials

• utilities

• infrastructure-related companies

• capital-intensive businesses

 

This reflects the view that the economy remains resilient and pro-cyclical.

 

 

9. Sideways market = opportunity set

According to analysts, the current market is not bearish — it is sideways.

Examples:

• S&P 500 trading in a range

• Nasdaq hovering around the 200-day moving average

• European DAX moving sideways for months

 

This type of environment is ideal for:

• active trading

• sector rotation strategies

• long/short strategies

 

It is less favorable for passive investing.

 

 

10. Potential commodity supercycle

There is also discussion about a possible commodity supercycle.

Main driver:

• the reconstruction of Ukraine

This could significantly increase demand for:

• steel

• copper

• aluminum

• cement

• energy

Many international companies are expected to participate in this rebuilding process.

 

 

11. Interest rate outlook

Analysts do not expect significant rate cuts this year.

Reasons:

• the U.S. economy remains strong

• the services sector is at highs

• inflation could still reaccelerate

 

This is not necessarily negative:

• if rates stay elevated, it signals economic resilience

 

 

12. Consideration

The Iran conflict is not the real risk for equity markets.

The real risks are:

• the credit market

• interest rates

• potential fraud or instability in debt products

If these factors deteriorate, a meaningful bear market could emerge.

 

In the meantime:

• the market remains range-bound

• opportunities are abundant

• volatility can be actively managed