The War on Iran Has Started - How Will Markets React, Quantitatively Speaking

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Last week’s blog’s opening line: “For investors who have been a bit fazed by stock market volatility thus far in 2026, we have probably, to paraphrase the old Jolson quote, “ain’t seen nothing’ yet.”” This weekend’s launching of the War on Iran is likely to precipitate even more volatility for all global markets – or as one trader said, “volatility on steroids.”

FIrst - a recap:

Markets closed the week with measured gains across major equity ETFs, even as geopolitical tensions escalated and volatility expectations rose sharply. Broad-based funds such as QQQM (+0.97%), SPYM (+0.59%), and VB (+0.94%) advanced modestly, while sector performance was more pronounced in Communication Services (XLC +2.33%) and Utilities (XLU +2.25%). Technology (XLK), which carries our highest rating of 5 (Strong Buy), edged higher by 0.17%, continuing to demonstrate relative resilience. At the same time, defensive positioning remains evident beneath the surface, particularly in precious metals and select commodity-linked equities, many of which have posted substantial 30-day gains.  

What impact will war have on markets this week? That is the question.

Here’s a quote from a Bloomberg Business Week article that ran yesterday:
“Macro traders said all eyes will be on energy markets when trading fully re-opens on Monday, with early indications of volatility also expected when the US dollar and other currencies start to trade in Australia. The possibility of prolonged turmoil in the Middle East and the ripple effects of higher oil prices are giving money managers fresh reasons to sell equities and shift into safety.”

How long the flight to safety lasts is anybody’s guess. With every bit of news, there may be massive trading programs moving back and forth while some investors and their managers flee to “safety” or reduce global equity exposures and possibly increase exposure to commodities.

GLDM still looks like the best way to benefit directly from the current environment – especially regarding the dollar’s continued decline. It provides the same exposure as GLD from the same issuer but at a fee of 10 basis points instead of 40 basis points.

One equity ETF that gets a 5 (Strong Buy) rating related to the rare earth metals’ theme is State Street SPDR S&P Metals & Mining ETF (XME). Its largest holding is Coeur Mining (CDR), a US-based precious metals mining operation is also rated 5. Another equity ETF that has plenty of 5-rated companies that is centered specifically on the stocks of gold mining and related companies is VanEck Gold Miners ETF (GDX). For this more-targeted exposure, however, there is also a higher expense ratio, 51 basis points in contrast to the six basis points charged by GDX.

Another group that has risen greatly but could rise more is Aerospace and Defense companies. A targeted ETF with that exposure, ITA, is rated at 5. Its top holding GE Aerospace (GE) is also rated 5.

Those interested in ramping up exposure to crude oil by buying the exchange-traded vehicle USO garnering exposure to a commodities pool are advised that a K1 tax-form will be issued at the end of the year. It also has a high expense ratio of 60 basis points. ProShares offers the only US-listed ETF that gives exposure to oil futures without issuing a K1 but carries a 69-basis points expense ratio. An interesting alternative is an Invesco ETF that invests in the stock of oil services companies using an algorithmic index targeting the underlying fundamentals. The ETF in question is Invesco Oil & Gas Services ETF (PXJ). It is currently rated 5 (Strong Buy). Its top-rated stock among its top 10 holdings is UK-based TechnipFMC (FTI), an oil services and solutions provider known for industry-leading technologies. FTI is rated 5 but is trading at a rich valuation.

While these three groups may continue their recent price gains, stocks in other sectors may spend the upcoming week reeling a bit from downside volatility. Time will tell. Traders are the group that are likely to pay most attention to trying to profit from these market swings. After the initial shock of America entering a war and the uncertainties that go with it are absorbed by the market, it has generally turned bullish. Therefore, the majority of investors are urged to stay the course.