Still, economist Ed Yardeni, president of Yardeni Research, believes the conflict is unlikely to end anytime soon and sees the possibility of a further correction of as much as 15% in global stock markets, especially in economies more dependent on oil from the Persian Gulf region.

“My concern is that the conflict lasts longer than the market expects,” he said in an interview with Valor. “It may be difficult to achieve a quick resolution to the conflict. Iran has lost significant ground in recent weeks, but may not fully recognize that, and conflicts involving non-state or asymmetric actors rarely end quickly, tending to drag on for extended periods,” said the economist, who previously worked at Deutsche Bank and Prudential Financial.

In his view, even if Israel and the United States have succeeded in eliminating leaders, “that does not mean the philosophy of the Iranian regime will disappear.” Yardeni sees a 10% to 15% correction in the global stock market as likely, especially in countries more dependent on Middle Eastern oil, such as South Korea, Japan, and China.

Against the broader market view, Yardeni believes the dollar should continue to strengthen. After a sharp depreciation last year, the consensus among investors for this year had been that the currency would remain on a downward path. But the dollar has risen firmly since the start of the war with Iran. “This conflict is also reminding investors that, in times of uncertainty, the main safe haven is still the United States and the dollar.”

Despite U.S. dominance, Yardeni also sees good opportunities in emerging markets such as Brazil. Late last year, he changed his recommendation on emerging markets to overweight, the equivalent of a buy rating. With the start of the war, the environment changed.

Still, once the conflict ends, he believes emerging markets have the potential to perform well. “There is no urgency to get in immediately, however, since valuations may become even more attractive if the war persists.”

Market relief

On Monday (23), U.S. President Donald Trump announced a five-day delay in attacks on Iranian plants and energy infrastructure, citing “productive talks” with officials from the Islamic Republic, which triggered a positive market reaction, though Tehran denied it.

Yardeni believes the possibility of negotiations is a good sign, but said the economic outlook remains uncertain. “Negotiating does not always get you where you want to go. It is still not clear where this is heading.”

New York stocks have proved resilient to the deterioration in investor sentiment. At its low for the year so far, the S&P 500 was down 4.96% from its all-time high, reached on January 27, when the index closed at 6,978.60 points.

Even so, Yardeni said it is “realistic” to expect a deeper correction. “We also need to consider the risks of a global recession and a global bear market, which have increased significantly over the past week,” he said.

So far, market participants’ concern has centered on inflationary pressures from higher oil prices. Yardeni,, however, also pointed to the possibility that this scenario could weigh on U.S. economic growth, something that, in his view, will leave the Federal Reserve in a difficult position.

“The Fed probably will not be able to cut rates, because that could intensify the inflationary effects of the oil shock,” he said. “We have a classic problem: higher inflation and weaker growth at the same time, putting the Fed in an extremely difficult position. At some point, the Fed will have to recognize that there are limits to what monetary policy can do, and that the outcome will depend more on how the conflict evolves.”

Yardeni stressed that there is still no clear prospect of negotiations or a ceasefire and believes Trump’s stance has often been contradictory, helping to deepen the sense of uncertainty. “He has been consistent in calling for unconditional surrender, something the Iranian regime is unlikely to accept,” he said.

In line with the consensus view among market participants, Yardeni expects the Fed to leave rates unchanged for at least the next seven months, avoiding classifying the inflationary shock as “transitory” in light of the uncertainty. “Rates are still high enough to slow the economy, especially with oil prices rising. I also think productivity is coming back, which could be an important disinflationary force in the coming years,” he said.

Yardeni also rules out the possibility of monetary tightening unless the war lasts longer than expected and oil prices remain at very high levels.

“Warsh will probably be frustrated. If he is confirmed by the Senate, he will take office in an environment of higher inflation,” Yardeni said, referring to Kevin Warsh, Trump’s pick to lead the Fed. “In that context, it will be difficult to persuade other members to cut rates. Most will probably prefer not to act, recognizing the limits of monetary policy. Warsh will probably have to moderate his stance even further.”

Yardeni believes that if higher energy prices, and therefore higher inflation, end up weighing on consumers, market participants may revise corporate earnings forecasts downward, hurting stock-market performance. “We have had oil shocks in the past that led to stagflation, bear markets, and even a lost decade for the U.S. market. We should not be naive in thinking that cannot happen again,” he said.