Middle East: All Bark, No Bite; US Stock V-Turn Validates Yesterday's Point

The US stock market experienced a multi-phase session yesterday, ultimately confirming the view that it's resilient to current geopolitical events. Early trading saw an uptick driven by interest rate cut expectations. However, mid-session, fears surrounding the Israel-Iran situation led to a downturn. As analyzed previously, the impact of such controlled conflicts on the US market is limited. Consequently, the market saw a V-shaped recovery, with all three major indices closing higher. Post-market, news of a potential agreement between Israel and Iran further alleviated panic, causing oil and gas stocks to fall. As of now, futures for all three major indices are still rising, reinforcing the idea that "the market is declaring with real money that US stocks may no longer be able to fall."

Geopolitical Landscape: Why Major Volatility is Unlikely

The geopolitical situation is unlikely to trigger significant market volatility due to two key factors:

• Strait of Hormuz: More Bark Than Bite: While Iran has threatened to blockade the Strait, the final decision rests with its Supreme National Security Council. Historically, Iran's economy heavily relies on this channel, with 80% of its oil exports passing through it. A blockade would be economic self-sabotage, making its actual execution highly improbable.
• Market Has Priced in Controlled Conflict: Iran's intentional "pre-announced attacks" — which avoided damaging energy facilities or causing casualties — served more as a symbolic statement than a genuine escalation. The market has already factored in the contained nature of these conflicts.

Investment Strategy

Broad Market Outlook

The broader market is likely to be resilient to significant drops in the short term. The Federal Reserve's recent dovish signals, including statements supporting a July rate cut, have shifted market focus back to economic data rather than geopolitical factors. The Nasdaq is currently in a consolidation phase. The 19,800 level is a strong resistance point, and it lacks a clear catalyst for a breakout. Future movements will largely depend on changes in upcoming economic data.

Tesla (TSLA)

Tesla may present a short-term trading opportunity. Despite safety concerns surrounding Robotaxi testing in Austin, retail investor sentiment has fueled a volume-driven breakout from its previous trading range. It could potentially retest the prior high of $358. Keep an eye on whether the upward trend continues with strong volume. However, there's short-term pullback pressure, so consider setting a stop-loss at $334 if entering a trade.

$Tesla(TSLA.US)