When war meets markets
I’ve been spending some time today looking through Terry Moran’s latest piece on President Trump’s approach to the escalating conflict in Iran. Moran’s take – that the President is essentially “winging it” – is a sobering read for any disciplined investor.
According to Moran, when you look at the transcripts from the President’s recent flurry of interviews with the New York Times, ABC News, The Atlantic, Fox News, and MS Now, you don’t see a cohesive strategy. You see a series of contradictory “exits.” One minute it’s a popular uprising, the next it’s a negotiated settlement, and the next it’s “we’ll see what happens.”
In the world of value investing, we loathe a lack of guidance. If a CEO spoke this vaguely about a company’s turnaround plan on an earnings call, the market would sell the stock off in a heartbeat. But when it’s the Commander-in-Chief and the “company” is global security, the stakes – and the volatility – are significantly higher.
Here are a few thoughts on the fallout for markets:
A strategic ambiguity tax
The biggest enemy of intrinsic value isn’t just bad news; it’s uncertainty. Markets can price in a war with a clear objective. They struggle to price in what could be a short or long conflict where the endgame changes mid-sentence.
The Straits of Hormuz Premium
Trump’s suggestion that the bombardment could last “four to five weeks” because the U.S. has “tremendous amounts of ammunition” doesn’t account for how Iran might retaliate, nor the possibility of a conflict that drags in multiple Arab nations. If Iran continues to target the Strait of Hormuz or Saudi infrastructure, we aren’t just looking at a temporary spike in crude, we might see a structural shift in the energy risk premium.
On oil prices, Trump’s “winging it” means volatility is the only certainty.
Compressed multiples
This isn’t the usual playbook, where share prices fall in advance of conflict, but rally during the war. This time, investors might demand a higher return for the risk of holding stocks during an unscripted war. When the geopolitical “Equity Risk Premium” (ERP) rises, price-to-earnings (P/E) multiples generally contract.
The defence classic
While defence contractors might see a short-term boost from the “burn rate” of missiles Moran mentions, the broader market could see a flight from “high-beta” and discretionary names toward businesses with genuine pricing power and economic moats that can withstand a macro shock.
Bond markets
Usually, war triggers a “flight to quality” into U.S. Treasuries, pushing yields down. However, if this conflict drags into the “longer version” Trump alluded to, the fiscal cost – combined with energy-led inflation – could create a tug-of-war. We could see short-term yields drop on fear, while long-end yields rise on the prospect of an unbudgeted military expansion.
Gold
In his interviews, Trump urged Iranians to “seize control of your destiny” but refused to say if the U.S. would back them up. That kind of “revolt at your own risk” rhetoric undermines U.S. credibility. When the world loses faith in the “plan” behind the reserve currency, they buy gold. Of course, nobody knows where gold will land, although I suspect the central banks that were big buyers before the war – think Poland, for example – won’t stop now.
Wartime thinking
If one accepts Terry Moran’s premise – that we are witnessing a “winging it” foreign policy – then we have to look for businesses that aren’t fragile. These aren’t just defensive companies; they’re high-quality businesses (which have underperformed in recent years), with strong pricing power, and moats that actually widen when the world gets messy.
I reckon Terry Moran is right: War clarifies leadership. But for those of us managing capital, war also clarifies the difference between a calculated risk and a blind gamble. Right now, the “winging it” approach suggests we should be leaning toward quality, liquidity, and a very healthy dose of caution in our global investing.
In light of this Iranian conflict, prime defence contractors with order backlogs and the pricing power to pass on rising input prices might be considered. Companies like Lockheed Martin (LMT) and RTX Corp (RTX) are hitting one and five-year highs for a reason; they have multi-year contracts and are essential to the replenishment cycle.
Meanwhile, when Middle East stability receives a question mark, I imagine US investors might be attracted to the relative stability of their domestic, regulated infrastructure businesses, including regulated water utilities and electricity transmission companies. People don’t stop using water or power because there’s a fight for the Straits of Hormuz.
And keep in mind, investors in these businesses often benefit from inflation-linked returns. If the war drives up energy costs and general inflation, these companies are legally allowed to adjust their pricing – a moat that widens and deepens.
Energy
If global investors tactically invest in energy, they probably won’t want to be near the ‘fire’. They might seek out high-quality producers in stable jurisdictions – think Canadian oil sands or Australian LNG producers like Woodside.
Importantly, as WTI and Brent crude creep toward US$100, these producers see an immediate expansion in their margins without the “sovereign risk” of being in the line of fire.
Private Credit & cash
As I’ve mentioned recently here at the blog, 2026 might be a year for tactical asset allocation and diversification. When the Equity Risk Premium spikes because the U.S. President is “winging it,” cash is no longer “trash” – it’s an option over lower prices.
With inflation and interest rates remaining “sticky” (and the Reserve Bank of Australia (RBA) potentially hiking again in May), private credit funds could potentially offer a yield that is uncorrelated to the daily swings of the S&P 500 or the ASX. It could provide a buffer while speculators are burned by volatility.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
