The past weekend was especially heavy and tumultuous as US-Iran war strikes continue to shake the world. The US strikes have ended up eliminating the Iranian supreme leader, Ali Khamenei, changing the financial order. At the same time, Iran had also blocked the Strait of Hormuz, a major canal responsible for the majority of the world’s oil trade transit. In such a distressing wake of events, how might the stock market react this week? Here’s a look at what may happen this week in a spree of events.

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Stock Market Expectations This Week

The geopolitical arena is quite hot at the moment, as the Iran-US war continues to deliver major blows. This development is set to impact the stock market deeply. Per the latest post by the Kobeissi letter, the portal shared how it expects an initial surge in commodities prices and drop in equities to begin with. This signals the usual cautious sentiment of investors as they pivot towards safe haven commodities to find refuge, switching the risk sentiment off temporarily.

“We saw a large geopolitical risk premium priced into many parts of this market. Oil prices are up 20% in 6 weeks, and gold prices surged 13% in a month. The question becomes: is this geopolitical risk premium “enough” for what’s happening now? It’s an “expectations versus reality” situation. At the 6 PM ET futures open today. We expect to see an initial surge in commodity prices and drop in equities.”

Moreover, the KL post outlined how it expects the closure of the Strait of Hormuz to be the biggest financial risk at the moment. If this war continues to extend, this may end up impacting the oil pricing heavily, leading the world into a period of utter chaos and menace.

“In our view, the Strait of Hormuz situation, and its potential closure, is the biggest risk to financial markets right now. Which will drive broader price action. If President Trump follows this historical path. We believe an initial surge in commodity markets and drop in equity markets could be rapidly undone, particularly if a “deal” is floated again. Even any sort of indication of when the military campaign will “end” could reverse price action rapidly. Again, a substantial geopolitical risk premium is already priced in.”

The ripple effect of this closure has already started to show its effects in the current stock market domain. The world’s second-largest shopping company, Maersk, had to suspend its operations due to the closure of the Strait of Hormuz earlier this weekend.

Cause and Effect

Furthermore, this development has already started to favor gold, as its price has not hit a new high of $5346 at press time. The KL post later emphasizes how the full closure of the Strait of Hormuz can send oil prices flying above $100 a barrel, indicative of a spike in inflation by 5%.

“However, the catastrophic case for markets is one where the US and Israel enter a prolonged war with Iran lasting months or longer, resulting in a sustained closure of the Strait of Hormuz. A full closure of the Strait of Hormuz would send oil prices above $100 per barrel. According to our analysis, which would imply a spike in US CPI inflation to ~5%. That said, do not forget that three of President Trump’s top policy priorities are to be the “peace president,” eliminate inflation.And lower US gas prices to $2.00 per gallon. A prolonged war with Iran would work in the opposite direction of these key initiatives. Particularly in the short term during a crucial midterm election year.”

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