Markets Brief: Are Investors Still Too Complacent?

Even with the deepening selloff in the stock market, are investors considering all the risks and growing impact of the Iran war?

One potential sign of market complacency can be found in the credit markets. Normally, credit spreads—the amount of yield earned over safe US Treasuries—widen during times of geopolitical uncertainty as investors demand higher compensation for taking on greater risks. During the early stages of the war, that’s what happened. But now, spreads are back down to around the historically low levels they were before the war. The ICE BofA Corporate Index spread over Treasuries was about 0.88% on March 26. That’s nearly unchanged from Feb. 27, just before the war began, according to research by Bank of America’s Yuri Seliger and Sohyun Lee.

Meanwhile, US stocks are down 7.4% since the war started, as measured by the Morningstar US Market Index. The market slid on Thursday and Friday as the war showed no signs of slowing down. That included a thumping for the Morningstar Global Semiconductor Equipment and Materials Index owing to investor expectations of a prolonged shortage of helium, which is needed for chip production.

However, the stock market is still up nearly 13% from where it stood a year ago, a solid return.

So what are the risks?

• The war isn’t over yet.
• Inflation is rising. Growth is at risk as well. The Organization for Economic Cooperation and Development now forecasts that US inflation will average 4.2% this year, or more than 1 percentage point higher than its forecast late last year. It said its projections faced “significant” risk if there are persistent disruptions to exports from the Middle East.
• Energy prices are still rising. Brent crude finished last week at roughly $112 a barrel, up about 54% since before the start of the war. West Texas Intermediate was just shy of $100, up 48%.
• Expectations are inching higher for an interest rate increase in 2026, rather than the rate cuts expected earlier this year.
• Valuations in the stock market aren’t particularly attractive. The forward price/earnings ratio for the US Market Index is 22.1. For context, the five-year average is 20.1, and the 10-year average is 19.7. The forward P/E for the Nasdaq 100 is 32, despite the index’s nearly 10% decline from its October peak.

If the Strait of Hormuz “remains largely closed for the foreseeable future, this would be cataclysmic for global economies,” says Jim Masturzo, chief investment officer of Research Affiliates. Still, Masturzo thinks the probability of this is only about 5%, given that “the impacts of a protracted war are negative enough that cooler heads must prevail and find an offramp.” As a result, he doesn’t believe the markets “are overly complacent at this point.”

Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth, highlights the negative feedback loop that could come with a continued selloff in bonds and stocks: “If the conflict persists for a more lengthy duration of time, the financial markets will start to pull back further. Any significant correction will have a negative impact on economic activity as well as consumer confidence.”

The Fertilizer Supply Shock

The conflict is also causing supply issues for fertilizer, since Gulf producers play a central role in the global nitrogen fertilizer trade. It’s also raising concerns about a global food crisis as farmers enter the spring planting season.

Since the start of the war, nitrogen prices have risen around 50%, and phosphate prices have gone up nearly 10%, according to Morningstar senior equity analyst Seth Goldstein. “The timing couldn’t be any worse,” he says. “This is peak demand coinciding with supply shocks. Even if the conflict ends tomorrow, I don’t think we’ve missed the supply shock.” He lists these reasons:

• Phosphate and nitrogen are sitting at ports.
• The biggest input to producing nitrogen is natural gas. Major supplier Qatar’s export infrastructure has been severely damaged.
• Meanwhile, Morocco (a major phosphate exporter) sources from the Middle East, and the country may have to shut down production if the war continues.

What the War Means for Fertilizer Stocks

The war has driven fertilizer producers higher. But Mosaic MOS, one of the world’s largest phosphate and potash producers, still looks cheap by Morningstar’s measure, trading at a 35% discount to Goldstein’s fair value estimate. That’s because price increases for phosphate have lagged those for nitrogen, leading investors to fret that high sulfur and ammonia costs are hurting the firm’s margins. Investors “misunderstand the situation,” he says, because only a third of Mosaic’s ammonia costs are subject to market pricing. He thinks Mosaic shares will be “a big beneficiary” once investors realize their mistake.

Goldstein recently raised his price targets for Mosaic and other US fertilizer companies. Both CF Industries CF, North America’s largest nitrogen producer, and Nutrien NTR, the world’s largest fertilizer producer by capacity, trade near their fair values.

Jobs Report on Deck

“Without work, all life goes rotten,” begins a quote by Albert Camus. February’s employment report showed surprise job losses, and the unemployment rate rose, signaling renewed weakness in early-2026 hiring momentum.

On April 3, the Bureau of Labor Statistics will report data for March. However, markets will be closed for the Good Friday holiday. Analysts on average expect nonfarm payrolls employment to increase 57,000 from February’s surprise losses, according to FactSet, and for the unemployment rate to clock in unchanged at 4.4%, returning to a “low-fire, low-hire” scenario in which firms reduce both the number of employees they fire and actively hire.

For the week’s key economic data and corporate events, check out our weekly markets calendar.