The past week has been a reckoning, as global markets begin to acknowledge that the "Iran war will not end soon."

``` Since the outbreak of the Iran war nearly three weeks ago, the market has held onto a comforting bet: that energy supply disruptions would be brief, the Strait of Hormuz would reopen, and the Federal Reserve's rate-cut cycle would resume as scheduled. Over the past week, this bet has completely collapsed. This week, the global bond market experienced a "bloodbath," gold posted its largest single-week decline since 1983, and US stocks fell for a fourth consecutive week, marking their longest losing streak in a year. Meanwhile, the probability that the Fed’s next move would be a rate hike—not a cut—rose to 50%. Mark Malek, Chief Investment Officer at Siebert Financial, characterized this week as a “moment of reckoning”—markets in all corners are finally facing reality: this conflict is not only set to be a prolonged and uncertain war, but it has also evolved into the worst-case scenario—a direct attack on all energy infrastructure in the region. At the same time, cross-market pressures are building at the fastest pace since last year’s tariff shock. According to a Bank of America index, equities and credit trades built on expectations of rate cuts are collapsing simultaneously, while emerging markets are also under pressure. Analysts point out that the Iran war is no longer a one-off price shock, but an ongoing threat that investors, central bankers, and business leaders are forced to confront. Bond Market "Bloodbath" and Gold’s Collapse: A Fundamental Shift in Market Pricing Logic Over the past week, the global bond market has been hit hard, becoming the most vivid illustration of current market turmoil. The yield on the US 10-year Treasury surged 13.4 basis points in a single day and climbed more than 10 basis points for the week; the 5-year yield broke above 4% for the first time since July, with a sharply flattened yield curve. European bonds weren't spared, either: the UK's 10-year yield rose 17.7 basis points this week, touching 5% for the first time since 2008; Germany’s 10-year Bund yield hit a new high since 2011 at 3.043%; Italy’s 10-year yield rose more than 16 basis points for the week. The German 2-year yield jumped 23 basis points in the same period. Gold’s collapse was particularly striking. Spot gold fell more than 10% for the week, while COMEX gold futures dropped over 11%, marking their largest weekly drop since March 1983. According to a [Wallstreetcn article](https://wallstreetcn.com/articles/3768045), the trigger for the steep gold decline at that time was also an oil crisis—Middle Eastern oil exporters, facing declining revenues due to lower oil prices, were forced to sell gold reserves for cash. The current historical context has led the market to draw parallels and worry over a repeat. Some analysts attribute the recent fall in gold prices to signs of US dollar funding stress. Cross-currency basis swaps widened noticeably this week, suggesting signs of dollar liquidity tightening; gold has also returned to a negative correlation with real interest rates—with real rates rising quickly, gold has come under pressure and fallen. In the precious metals market, silver fell even more, with COMEX silver futures down more than 16% for the week; copper, aluminum, and tin also dropped across the board—London copper, for example, fell more than 6.6%, slipping below the $11,000 mark. ETFs tracking the S&P 500, long-term US Treasuries, and gold recorded their worst combined weekly performance since the outbreak of war. Priya Misra, a portfolio manager at JPMorgan Asset Management, put it more bluntly: “Risk premium should be higher—this is the biggest energy shock in history and there are no easy fiscal, monetary, or energy policy solutions. Recession risk should be rising sharply. Stock and credit spreads have been holding up too well under the expectation that businesses and households can somehow absorb the energy shock.” The Fed Trapped in a Dilemma, Policy Expectations Reverse Abruptly At the core of this reckoning is the violent repricing of market expectations for the Fed’s policy path. On Wednesday, the Fed left its rates unchanged, with Chair Powell making it clear that the oil price shock has made the inflation outlook too uncertain to offer guidance on easing. On Friday, Fed Governor Waller said he is cautious about how higher oil prices will impact inflation, but also noted that if the job market weakens, a rate cut might still be necessary. He also admitted that, “the conflict is proving to be more persistent, and risks of long-term high oil prices are rising.” Market reaction was even more aggressive. According to a [Wallstreetcn article](https://wallstreetcn.com/articles/3768043), current pricing shows a 50% chance of a Fed rate hike by 2026—previously, bond traders were mostly betting on rate cuts, but now are being forced to adjust their strategies rapidly. Gennadiy Goldberg of TD Securities is skeptical: “We do not agree with the market’s expectation of a hike. Surging oil prices should cause the Fed to delay cutting rates due to stagflationary pressures, but if prices rise enough, it may trigger a financial conditions shock and actually force the Fed to respond with a rate cut.” Bloomberg Macro Strategist Michael Ball warns that the Iran conflict-triggered reversal in monetary policy expectations and tightening financial conditions is putting the S&P 500 at risk of shifting from a controlled pullback to a full-blown correction. The European Central Bank faces an even trickier predicament: energy-driven inflation blocks the path to rate cuts, while worsening growth prospects urgently call for easing—a dilemma putting the ECB at an impasse. Wall Street Reprices a “Protracted War” The true turning point for the market is a fundamental change in investors’ expectations about the duration of the conflict. As [Wallstreetcn notes](https://wallstreetcn.com/articles/3768030), US officials have signaled the White House is sending several hundred more Marines to the Middle East and is considering plans to seize or blockade Iran’s Kharg Island oil export hub—which handles around 90% of Iran’s oil exports. This week, Trump first said he didn’t want a ceasefire, later stated he was considering a gradual de-escalation of military action, and again pressed military allies to join the war or help clear the Strait of Hormuz. Jose Torres of Interactive Brokers says bluntly: “Investors initially thought the Iran war would end quickly, but as the confrontation escalates with no end in sight, Wall Street’s pain continues.” Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs Global Investment Research, comments: “If this rate-energy shock persists or deepens, growth pricing for all assets needs to shift further toward pessimism. The market is not fully pricing in growth risk, which partly explains why US stocks haven’t fallen even further.” Garrett Melson, portfolio strategist at Natixis Investment Managers, says the market is “pricing in a longer and longer ripple effect each day,” and has recently cut exposure to small caps while increasing allocations to large-cap growth and tech stocks. Defensive adjustments at the institutional level are accelerating: - Société Générale lowered its recommended global equities allocation by 5 percentage points during Thursday’s increased volatility, while upping commodities allocations; - BCA Research advises clients to raise cash holdings and reduce stocks; - Goldman Sachs Global Investment Research suggests defensive positioning, adjusting its three-month tactical allocation to overweight cash, underweight credit, and remain neutral on other major asset classes. Historically, since 1939, analysis from over 30 episodes of geopolitical shocks shows that US markets typically bottom around the 15th trading day after the shock, with an average decline of just over 4%. So far, the S&P 500 has fallen approximately 5.5% since the outbreak—corresponding to about the 13th trading day—a period historically marked by the overlap of “worst news flow” and “maximum market pain.” David Laut of Kerux Financial says: “Stocks have been negative year-to-date, and hit a 2026 low this week. This suggests the market may not have bottomed and is still processing uncertainty around the duration of the Middle East conflict.” Risk warning and disclaimer The market involves risks, and investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account an individual user’s specific investment objectives, financial situation, or needs. Users should assess whether any opinions, views, or conclusions herein are suitable for their own circumstances. Investments made on this basis are at your own risk. ```