Investors are wondering if buying the dip when war breaks out will work this time around as the conflict between the U.S. and Iran grows. The old Wall Street adage “buy the cannons, sell the trumpets” suggests that traders might race to pick up stocks in reaction to war headlines, expecting a rebound. But the question this week is if oil and natural gas prices could shoot so high that they dampen growth, derailing the recovery trade, according to Deutsche Bank. “We’ve previously written how geopolitical events don’t usually cause a sustained market reaction,” Henry Allen, a London-based strategist at Deutsche Bank, wrote to clients Tuesday. “But the exception is when the geopolitical event has a macro channel to affect markets, and events in Iran are a prime example of that.” Crude oil prices soared after the U.S. struck Iran Saturday . Concern about future supplies grew acute after Iran promised to block the Strait of Hormuz , a vital pathway for 20% of global oil and liquefied natural gas shipments. Still, Allen said West Texas Intermediate crude prices so far are still beneath their 2024 average, and percentage gains are less than the crises levels seen when Russia invaded Ukraine in 2022 or during the two Gulf Wars. If there is a larger spike in oil, the strategist said that specific factors need to be in place for that to translate to a slide of more than 15% in the S & P 500 . Allen said at least one of three of these conditions would have to be met, none of which are so far in play: An oil price jump of at least 50% to 100% that holds over several months. The oil price increase can push an already-cooling economy into a recession or meaningful slowdown. Central banks institute a hawkish policy response to the oil cost gains. “The critical question over the days ahead will be if one of these boxes is ticked,” Allen said. .SPX 5D mountain The S & P 500, 5-day chart The S & P 500 staged a dramatic midday rebound Monday and ended the day slightly higher. But as the war expanded, the broad index tumbled as much as 2.5% early Tuesday before recovering. Some on Wall Street see the latest volatility as an entry point for investors. Jonathan Krinsky, chief market technician at BTIG, noted the old adage that “when missiles fly, time to buy.” “Typically sharp moves on geopolitics are not durable,” Krinsky wrote to clients, adding that messy market moves are “more likely a tactical opportunity to buy than sell on the index level.”
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