Investors are increasingly pricing in a prolonged conflict in the Middle East following fresh exchanges of strikes between U.S. and Iranian forces.
The escalation has shifted away from expectations of a swift diplomatic resolution, with traders bracing for what many are calling a 'long grind.'
Despite the renewed hostilities, the S&P 500 has continued to defy the geopolitical backdrop, recently rebounding to close above 7,000.
However, the underlying risk premium is creeping back into pricing as Central Command reports indicate sustained military activity.
The disconnect between equity resilience and deteriorating geopolitical conditions suggests markets are currently absorbing the shock, though volatility may rise if the conflict expands further.
Commodity markets, particularly oil, remain sensitive to any escalation in the Strait of Hormuz or broader regional supply disruptions.
While immediate supply shocks have not materialized, the prolonged nature of the conflict keeps a floor under energy prices and supports a risk-off posture in certain sectors.