US S&P 500 Index

Wall Street fell overnight as tensions in the Gulf escalated, with tanker attacks and the Strait of Hormuz effectively shut, pushing Brent back toward US$100. While the U.S. and Israel hold clear military dominance, Iran’s hardline regime remains entrenched and appears to be leveraging oil supply disruptions to create economic pressure and force a diplomatic off-ramp. In his first public comments as Iran’s new supreme leader, Mojtaba Khamenei vowed to keep the Strait of Hormuz effectively closed and warned Tehran could open new fronts if U.S. and Israeli attacks continue. At this stage, markets are firmly locked into the conflict and the underlying movement in oil prices, but we should remain conscious that the S&P is still within 5% of its all-time high, i.e. not too bad under the circumstances, although many sectors and stocks have faired a lot worse.

• The S&P500 looks on track to retest 6500, around 3% lower, unless we see a quick resolution in Iran.