Spending time on the economic developments that took place prior to the U.S. strike on Iran’s three primary nuclear facilities—Fordow, Natanz, and Isfahan—seems, at this point, a futile exercise. Instead, the critical question on every market participant’s mind is this: What are the financial consequences of this monumental geopolitical development?
Oil Markets: Pricing in Risk, Not Yet Shortage
Iran’s Parliament has since voted to close the Strait of Hormuz, a critical artery for global energy shipments, although that decision still awaits confirmation from the Guardian Council. If enforced, this would mark a dramatic shift from pricing risk to confronting real supply constraints.
Longer term, oil prices will largely depend on how Iran responds to the U.S. strikes. So far, the physical supply of energy has remained intact. But central bankers—already walking a tightrope between containing inflation and supporting growth—are now faced with renewed energy price pressures. The path to 2% inflation in the U.S. just became more complex.
Treasury Yields: Safe Haven Demand, but Not a Trend Reversal (Yet)
U.S. Treasury yields have, in recent weeks, traded in a remarkably well-defined range: around 4% for 2-year notes, 4.5% for 10-year notes and near 5% for 30-year bonds. The Federal Open Market Committee left monetary policy unchanged at its June 18 meeting, and Fed Chair Jerome Powell’s comments did little to move yields.
That may be shifting—at least temporarily. As of Monday morning, Treasury markets are showing signs of safe haven demand. Yields are ticking lower as investors around the world seek shelter in U.S. government bonds. However, we believe any downward movement is likely to be short-lived unless inflation retreats more convincingly toward the Fed’s target.
The uncertainty around future inflation is compounded by the broader macroeconomic backdrop: tariffs remain in place and global shipping costs are under renewed pressure. The Federal Reserve will likely remain in wait-and-see mode, just as investors are doing now.
Equity Markets: Volatile, but Still Focused on Fundamentals
Stock futures are pointing lower to start the week, as expected. The scale and timing of the U.S. operation—coupled with Iran’s anticipated response—has introduced significant headline risk. But we caution against knee-jerk reactions or emotionally driven re-allocations.
There is still a very plausible scenario in which this intervention, while dramatic, marks the beginning of de-escalation between Israel and Iran. If that occurs, markets could stabilize quickly. Conversely, if conflict spreads, further volatility is likely. Investors would do well to remember that the first move is not always the lasting one.
The Week Ahead: Beyond the Battlefield
Markets will continue to watch for Iran’s official response and whether its threats to close the Strait of Hormuz materialize. Additional attention will be paid to any diplomatic reactions from global powers like China and India.
By midweek, focus will shift—at least in part—back to domestic policy. On Tuesday and Wednesday, Federal Reserve Chairman Jay Powell delivers his Semiannual Monetary Policy Report before Congress. This testimony may provide clues about the Fed’s evolving stance in light of new geopolitical risks layered on top of persistent inflation concerns.
At Elevage Partners, we anticipate—so we prepare
This week will likely test investor resolve. But thoughtful, long-term planning—grounded in discipline, not headlines—is the fuel to driving successful outcomes. If you have questions about how your portfolio is positioned amid current events, or whether new opportunities are emerging, our team is here to support your next step forward.
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.