More advisors talk about the market risks of a protracted conflict

What are the biggest market risks advisors are watching right now as the conflict with Iran unfolds?

Lets start with oil, which went on a wild ride Tuesday from $90 a barrel to $76 to $86, dragging stocks along with it, as a result of news reports regarding the closure of the Strait of Hormuz.

Jeff Mortimer, founding partner and chief investment officer at Elyxium Wealth, says uncertainty over the price of oil is the biggest immediate risk facing stocks, along with how prolonged geopolitical tension could impact inflation and global growth expectations. In his view, markets tend to struggle most with uncertainty rather than the conflict itself.

“The early market reaction suggests investors were not positioned for perfection going into this event, as many of the higher-valued sectors had already experienced some pullback in recent months. We do expect volatility to persist as markets digest daily headlines and potential implications for oil prices, inflation, and global GDP,” Mortimer said.

Added Mortimer: “While the human toll of war can never be minimized, market history suggests that investors should be cautious about overreacting to geopolitical shocks.”

From a positioning standpoint, Mortimer has been encouraging investors to gradually reduce concentrated exposure to the ‘Magnificent Seven’ and tilt portfolios more toward value and quality, including opportunities further down the market-cap spectrum.

Elsewhere, Nick Holuta, senior vice president at Dynasty Financial Partners, says the duration of the conflict is the single biggest variable and risk.

“If this resolves in the near term with a defined outcome, history tells us markets absorb geopolitical shocks relatively quickly — the S&P 500 historically has typically bottomed within about three weeks of a crisis and recovered within six. But a protracted conflict that keeps the Strait of Hormuz effectively closed, sustains the energy disruption, and stokes inflation — that's a different story,” Holuta said.

According to Holuta, a long, drawn-out war would delay Fed rate cuts, pressure international economies more severely especially in Europe, and create a more challenging backdrop for risk assets broadly.

“Right now, the market is pricing this as a seemingly more contained, shorter-duration event. We think that's reasonable, but we're watching closely,” Holuta said.

Holuta points out that the U.S. is better positioned than most to absorb an oil shock due to the fact that the country is an energy exporter with domestically driven growth. That said, he believes sustained high energy prices are inflationary at the margin, and the Fed doesn't have a lot of room to look the other way if inflation re-accelerates.

The bigger concern isn't really the U.S. in his view.  It's Europe and import-dependent Asia. 

“Europe spent much of 2025 benefiting from falling energy costs, and that tailwind is now reversing sharply. South Korea, which imports nearly all of its energy, is a case study in the kind of vulnerability this conflict exposes, and you can see that in how the Kospi Index is down nearly 18% since the start of the conflict,” Holuta said.  

When it comes to positioning, Holuta says he has been building portfolios with geopolitical resilience in mind for some time now, not because he predicted this specific conflict, but because he recognized the world had entered a period of elevated and durable geopolitical risk.

“That's why we've held gold, why we initiated an aerospace and defense position in late 2025, and why we've maintained a U.S. overweight funded from international developed markets. Each of those decisions is contributing positively right now,” Holuta said.

Finally, Brian Gately, managing partner at Anchyra Partners, adds that regional contagion remains a substantial market risk. However, Iran’s neighbors have responded with restraint so far which has prevented a broader market sell off in his opinion. 

“Prolonged elevation in the price of oil and gas is an inflationary force. Corporations dependent on oil as an input can eventually expect lower margins which often leads to increased prices. Meanwhile, higher prices at the pump erode consumer discretionary spending power. Taken together, inflation, margin pressure, and reduced consumer spending power are negatives for the economy and financial markets,” Gately said.