A buying opportunity will emerge after Monday's sell-off. Just not yet. U.S. equities were under pressure after a joint attack from the U.S. and Israel against Iran over the weekend. Stock futures were sharply lower, while gold prices soared as traders searched for a safe haven. Oil and natural gas prices surged after the conflict disrupted shipments out of the Persian Gulf, as well as and crude and LNG production. But while many on Wall Street may be looking at these declines in stocks as a buying opportunity, they may also want to wait. Wells Fargo found that since World War II the S & P 500 sees a median gain of 0.4% two weeks after a geopolitical event. But nearer term, in the one-, three- and seven days following an event, the benchmark has historically seen a loss on a median basis. In the following one-, three- and 12 months, the index followed geopolitical events with median advances of 1.2%, 2.7% and 11.2%. "The situation is fluid, but the playbook from the past two Gulf Wars was to sell the news, i.e., buying stocks," Wells Fargo strategist Ohsung Kwon wrote to clients. "In both instances, SPX was volatile during the military buildup, then rallied 16% during the Gulf War 1 and 14% in the first three months of Gulf War 2." "History also suggests geopolitical dips should be bought, usually recovering in two weeks," he said. He added that his "worst case" scenario takes the S & P 500 to 6,000. That implies almost a 13% decline from Friday's close. JPMorgan's trading desk echoed Wells Fargo, noting: "We are Tactically Cautious as we prepare for what may be a multi-week period of elevated uncertainty." "We would look for a 1-2 week decline in risk assets, creating a buy-the-dip opportunity as the market looks through the initial pullback," said JPMorgan traders.
