It sounds sick, but Iran hostilities may be good for stocks

So, President Trump ordered B-2 bombers to drop bunker-busting bombs on three Iranian nuclear facilities late Saturday. He pronounced the result “a spectacular success,” with Iran’s nuclear enrichment facilities “completely and totally obliterated.”

There will be lots of media coverage Sunday and beyond on whether the operation worked and whether the United States will be dragged into a third war in the Middle East since 1991.

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A question for investors, however, is this: How will stocks react?

There are some unknowns.

There’s been no verification that Iran’s nuclear enrichment facilities are, in fact, totally obliterated.
It’s not clear if Iran will try to cut a deal to stop the Israeli and U.S. bombing or opt somehow to play a long game of defending itself with missile shots at Israel and U.S. military bases in the Middle East.

2003 war set off a big rally

Nonetheless, there’s a good chance Wall Street will seize on the attacks as a prime stock-buying opportunity.

That’s what happened in 2003’s Second Gulf War when U.S.-led forces invaded Iraq and toppled the dictatorial regime of Saddam Hussein.

Stocks started to tumble in late January 2003 as another war against Iraq became inevitable. The Standard & Poor’s 500 Index was down as much as 9% for the year on March 11. But then investors started to believe the invasion would go well, and the S&P 500 started to recover.

Indeed, when Baghdad fell on April 9, 2003, the index had recovered all the early losses and was up 8.2% from the March low.

And stocks never looked back. The S&P 500 finished up 26.4% in 2023. The gain from the March 2003 low to year-end: 38%.

Troops making last minutes preparations for war in the desert of Kuwait, ahead of the 2nd Gulf war in March 2003.

Mirrorpix/Getty Images

One will be able to see how investors and markets are looking at the conflict starting at 6 p.m. ET Sunday. That’s when futures trading in the S&P 500, the Dow Jones industrials and the Nasdaq-100 starts.

Gains like 2003 might not happen. Iran was lobbing missiles at the Israeli cities of Tel Aviv and Haifa into Sunday. And, so far, there’s no hint that Iran’s leadership wants a cease fire.

What’s the downside?

A prolonged fight might be bad for stocks. Iran has missiles and drones to deploy. It could block off Strait of Hormuz, through which 25% of the world’s crude oil is shipped.

Blocking the strait would send global oil prices sharply higher and cause havoc for the global economy.

in fact, oil prices already have reacted.

As tensions have grown between Israel and Iran (and now the United States), crude oil has climbed 29.3% to $73.84 per 42-gallon barrel from a May 5 closing low. U.S. gasoline prices have risen, too, about 4% or so, to about $3.20 a gallon, according to GasBuddy.com.

Oil companies would profit. In fact, stocks in the S&P 500’s Energy Sector are up 9.2% so far in June, the best performance by any of the 11 S&P 500 sectors.

Oil-and-gas producer APA Corp. (APA) , the sector leader is up 15.8% over the last month, according to Barchart.com data. Exxon Mobil (XOM) has jumped 9.3%; Chevron (CVX) is has risen almost 9%.

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Micron, FedEx, Nike, Carnival lead earnings reports

Theoretically, the first-quarter earnings seasons is done, but some of the late stragglers due this week are important.

These include:

FedEx (FDX) , after Tuesday’s close. FedEx shares have struggled, but there is hope. The delivery giant is doing business again with Amazon.com (AMZN) , and its business overall is growing again. But shares are off nearly 20% this year because of tariff worries. Earnings are estimated to rise 8.9% from a year ago to $5.89 a share. Revenue will be off slightly at $21.8 billion.
Cruise-line giant Carnival Corp. (CCL) , before Tuesday’s open. Between August 2024 and Jan. 30, the shares doubled to $28.49 because bookings were beyond terrific. Then, the shares fell 49%, thanks to the Trump tariff plan and the mini-stock panic. Carnival is back to $23.77. The quarterly revenue estimate of $6.2 billion is up 7.3% from a year ago. Earnings of 24 cents a share would be up 118%.
Chip maker Micron Technology (MU) shares are up 47% this year, and Wall Street likes — no, loves — the stock, whose chips have carved out a lucrative spot in artificial intelligence. In fact, the shares are already ahead of one analyst’s one-year price target. The revenue estimate is $8.8 billion, up nearly 30% from a year ago. Earnings of $1.59 a share would be up 156%.
Nike (NKE) is having a challenging year. The shares are down 21% this year, third-worst among the Dow Jones industrial stocks. True, it’s selling athletic wear and shoes again on Amazon.com, but it is extremely vulnerable to the Trump tariff hikes. Barrons says Nike’s factories in Vietnam, Indonesia and China manufacture 50%, 27% and 18% of all its footwear. (Yes, that adds up to 95% of production.) The Nike revenue estimate: $10.7 billion, down 15.1% from a year ago. Earnings of 12 cents would be down 88%.

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2003 war set off a big rally

What’s the downside?

Micron, FedEx, Nike, Carnival lead earnings reports

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