Barclays recommends: Wait for the S&P 500 to decline by 10% before buying the dip

Investing.com - After the preemptive strike against Iran by the United States and Israel, launching Operation Judea Shield, global stock markets opened with sharp volatility, triggered by rapid retaliation in the Middle East.

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Iran launched missiles targeting U.S. bases and allied countries, with explosions reported in Dubai, Riyadh, Abu Dhabi, Bahrain, and Kuwait. The escalation of the conflict was sparked by the killing of Iran’s top leader, Ayatollah Ali Khamenei, during joint operations.

Israeli officials also listed several senior figures eliminated in the first round of strikes, including Defense Minister Aziz Nasirzadeh, Security Council Chairman Ali Shamhani, and Islamic Revolutionary Guard Corps commander Mohammad Pakpour.

Despite the rapidly deteriorating geopolitical situation, some strategists warn that market impact may be limited. Vital Knowledge analyst Adam Crisafulli said recent history shows that markets often absorb such shocks.

Crisafulli said, “As demonstrated by multiple significant geopolitical conflicts over the past few years, the impact on the U.S. stock market is usually short-lived, and there’s no reason to believe this time will be different.”

Barclays Global Research Head Ajay Rajadhyaksha is more cautious. He stated that Iran “may lack the capacity to sustain military operations,” and added that the missile strikes might mainly target domestic audiences, “demonstrating resolve without crossing the threshold that would require further U.S. retaliation.”

However, Rajadhyaksha warned that the risk environment has shifted. While there are strong reasons to keep the conflict contained, he said the tail risk of further escalation is higher than in recent years.

He added that investors should resist the urge to buy into any market weakness immediately. Rajadhyaksha said, “Historical evidence strongly supports selling geopolitical risk premiums at the onset of hostilities.” But he warned that markets may underestimate the possibility that tensions could escalate further.

“We advise against buying any immediate dips — the risk-reward ratio doesn’t look attractive. If the stock market drops enough (for example, the S&P 500 falls more than 10%), it might present a buying opportunity. But now is not the time,” Rajadhyaksha concluded.

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