Speaking to ET Now, Stephen Innes from SPI Asset Management described the environment as one driven not by peace, but by a temporary pause in escalation.
“Well, it is going to continue to be chaotic in the headlines, there is no question about that, and currently the market is not really trading a peace trade. It is trading a pause trade. And this is okay. War is not escalating. The absence of that escalation is a good thing, not a bad thing.” However, he noted that underlying tensions remain unresolved. “There is no sign of resolution and ceasefires like this tend to buy time. But there is also that underlying pressure that has not gone away, specifically in the oil market, and this is where the North Star sits for a lot of global market positioning.”
Oil continues to act as a key trigger for market reactions. A recent surge in Brent crude above $100 per barrel led to a noticeable pullback in risk appetite. “Brent shot over 100 earlier in the US session. That really caused risk to buckle. That seems to be a swing point for what the market is trading around right now.” At the same time, there appears to be a gradual shift in geopolitical strategy. “The diplomacy could extend a little bit here. But the objective now from the US, if I am not mistaken, is moving from military pressure to more economic pressure on Iran.” Innes highlighted Iran’s heavy dependence on oil exports for revenue, pointing out the economic strain the country is facing. “Iran is structurally dependent on oil flows moving through the Strait of Hormuz to get most of its income… Hyperinflation, monetising debt—this is all working negatively in the background, and Iran is really struggling right now. So they need that oil revenue to start coming through again.”
Despite geopolitical tensions, equity markets appear to be showing resilience, with major indices reflecting strength. According to Innes, this is largely driven by renewed enthusiasm around AI. “Right now, we seem to be back into the AI enthusiasm mode… If we look at the composition of AI stocks in the US market, say 45% are driven by AI, and that enthusiasm is coming back.” He also noted divergent trends within Asia, where technology-heavy markets are performing better. “Japan does have some solid technology names, and that is what we are seeing. I am a little bit surprised to see the big sell-off in Hong Kong… I have not really taken a close look at that market yet.”
On the geopolitical front, economic measures are increasingly being viewed as a preferred strategy over direct military action. “What we are seeing… is that economic warfare is starting to come through right now. Logically, they have done a lot of damage on the military front—that is unquestionable.” He further explained how restricting oil flows could intensify pressure on Iran. “Ultimately, they are going to fill up all their tanks, and that is going to hit pretty soon… Iran will have no place to put oil… and that is the next objective for the US—to push through economic stress rather than military stress right now.”
Domestic political dynamics in the United States are also influencing the broader strategy. “The mid-term polls are going against him right now… They are trying their best to re-swing it back to a humanitarian crisis situation again, try to drum up votes.” Innes pointed out a shift in public sentiment as well. “The US population seems to be aligning itself with an anti-Israel tact right now… ‘This is not our war. It is Israel’s war. We do not need to attend.’ This seems to be the common attitude prevailing in the US polls right now.”In terms of investment strategy, traditional safe havens appear to be losing their appeal. “Our traditional safe havens are pretty much absent, aren’t they? Gold used to be one of our big flyers, but the negative impact that higher oil prices are having on interest rates is weighing on gold substantially.” Instead, investors are increasingly turning toward commodities as a hedge against uncertainty. “Beyond cash… we still continue to see commodities in general as a safe haven bet… especially those related to military and AI effects.” Looking ahead, Innes believes that resource security will remain a dominant global theme even after the conflict subsides. “Not only energy security but commodity security is going to be embraced by a lot of countries around the globe once this war passes.”