Trump Eases Geopolitical Fears in U.S. Markets? Morgan Stanley Sees Selloff to Fade, “Roaring 20s” Still Alive

TradingKey - Despite escalating tensions between Israel and Iran, U.S. equities have remained surprisingly resilient, showing few signs of broad panic. After the U.S. launched direct strikes on Iranian nuclear facilities, Morgan Stanley suggested that the geopolitical-driven selloff may fade, with Wall Street heavyweights insisting that the bull market remains intact.

Since the outbreak of the Israel-Iran conflict, oil prices have surged, but the S&P 500 has remained around the 6,000 level, while the VIX volatility index has barely budged, hovering near 20.

S&P 500 in 2025, Source: Yahoo Finance

Morgan Stanley: Geopolitical Selloff Likely Over

In a Monday report led by Michael Wilson, Morgan Stanley analysts noted that history shows most geopolitical selloffs are short-lived or mild.

The firm found that while past geopolitical events caused short-term market fluctuations, the S&P 500 still delivered average gains of 2% one month after the event, 3% after three months, and 9% after a year.

Wilson pointed out that a weakening dollar and rebounding earnings growth are helping support U.S. equity valuations.

While some analysts have warned that an Iranian threat to block the Strait of Hormuz could bring back the stagflationary shock seen in 2022, Morgan Stanley believes oil prices would need to rise toward $120 per barrel before posing a real threat to the business cycle — and such a scenario remains distant for now.

Yardeni: The “Roaring 20s” Scenario Still in Play

Ed Yardeni, founder of Yardeni Research, said the next move in the Israel-Iran conflict will largely depend on Iran’s response, but its leadership may choose not to retaliate with significant military action.

He argued that the U.S. strike on Iran actually reinforces American military deterrence, enhancing the credibility of Trump’s "peace through strength" rhetoric.

Yardeni reiterated his bullish outlook — a continuation of what he calls the “Roaring Twenties” bull market, projecting the S&P 500 could surpass 10,000 by 2030.

He added that the bull market that began in October 2022 remains intact, with the index still on track to reach 6,500 by year-end 2025.

Yardeni pointed out that earnings estimates for the S&P 500 are rising again, marking the third consecutive week of record-high revisions.

He noted that although profit forecasts dipped slightly earlier this year amid tariff concerns, it now appears that tariffs will have little to no impact on corporate profits.