Why War Isn’t Spooking Wall Street—Yet

SPEAKER_1 (0:00)

Goldman Sachs 2026 Outlooks examine the trend shaping the global economy. From global growth and regional perspectives to deep dives into asset classes and portfolio allocation. Listen to Exchanges Outlook 2026 from Goldman Sachs.

Luke Vargas (0:18)

Gulf leaders insist on crippling Iran's regime before ending the war. Plus, as fighting drags on, we'll look at why Wall Street isn't freaking out, at least not yet.

Emmanuel Cau (0:30)

So we see the shorter this conflict will be, the smaller the impact should be on the economy and the consumer. But as of now, we're actually having a stack-fationary risk that is growing by the day without a quick de-escalation.

Luke Vargas (0:41)

And bad news for the struggling US. Postal Service as Amazon plans to take its business elsewhere. It's Wednesday, March 18th. I'm Luke Vargas for The Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

Gulf officials say they want the US to keep up the fight against Iran in order to render it incapable of future attacks, a major pivot from a region that once courted Tehran. Speaking to the Journal, Emirati and Qatari officials described Iran as the belligerent party citing its attacks on infrastructure and civilian targets, while another senior Gulf official said the only acceptable outcome of the war would be in Iran so enfeebled that it could never imperil its neighbors again. Iranian leaders in recent days have said they'd only accept a ceasefire with the US and Israel if the country received reparations and ironclad guarantees against future attacks. Meanwhile, Iran struck central Israel with missiles overnight, causing heavy damage and killing two people, raising the death toll in Israel since the start of the war to at least 14 And authorities in Iraq report that the US. Embassy in Baghdad suffered a fresh attack without providing more details. The compound was hit by a missile over the weekend and targeted by rockets and drones Monday and Tuesday. Well, with the war dragging on, the effective closure of the Strait of Hormuz, sending energy prices soaring, and inflation warnings now cropping up around the world, why are US equity markets off just a few percentage points since before the fighting started? Emmanuel Cau is the head of European Equity Strategy at Barclays, and he joins me now to discuss why that is and whether that trend will continue. Emmanuel, Wall Street's reaction this far has been much less negative compared to past conflicts in the Middle East in spite of concerns that this all could become a protracted situation. Why is that?

Emmanuel Cau (2:43)

Hey, Luke, I think the market is pretty comfortable with the view that President Trump cannot afford to have a long-lasting shock and starvationary heat to the US economy, right? And I think there is still a lot of trauma from investors having sold equities after Liberation Day a year ago, which was a big mistake. So I think investors are hopeful of a swift resolution to this conflict on the view that Trump will ultimately do whatever is good for the US economy.

Luke Vargas (3:12)

And that includes triggering a swift policy response, pushing in particular the IEA to release all of the soil.

Emmanuel Cau (3:18)

I think this is part of the toolbox. But I guess what we can conclude from Trump's communication in the last couple of days, is that the oil price has touched its paint threshold. So that was already seen a year, a week ago, when Trump was starting to talk about this de-escalation after oil price went above $120. Obviously, it's not just about him tweeting about the end of the conflict. We need to see the other parties, whether it's Israel or Iran, willing to support this de-escalation effort. I think this is where we have a bit of question, Marc, about whether the market is too complacent about the outcome of this conflict, and whether you could get the situation too worsen before it gets better. I think what we said is that typically, for a 30 percent move up in oil, what about 10 to 15 percent drop in equity market. So far, the global equity market is down only 4 percent. It's not the typical risk of we had in previous oil supply shocks.

Luke Vargas (4:16)

Yeah, and we've spoken on the show in recent days about some of the factors that have insulated the US economy in particular from this crisis, more so than the rest of the world. It really helps, for instance, to be a net energy exporter. What else?

Emmanuel Cau (4:30)

Look, I think the US markets, whether it's US equity market or the US dollar have behaved as a safe haven again, right? And think about this in the context of the past six months, where the only game in town was sell America and rotation towards international market. What we saw in the last couple of weeks is the safety of the US market prevailing again. And yes, I think the most hit markets are those which are the most energy sensitive. So we've seen Asian equities, the European equities coming down quite a lot more than the US equity market, which is again, less directly impacted by this kind of stagfationary fears. And even if you look at the rate market, we had a pretty hawkish repricing in Europe and race, because now the market is looking for the ECB to hike rate as a consequence of this inflationary shock, while seeing the market is still looking for one cut from the Fed this year. So the market is really seeing that this stagfationary shock will be much more acute in Europe than it will be for the US.