Despite the growing selloff in the stock market, are investors considering all the risks and the growing impact of the Iran war?
Another possible sign of market complacency can be found in credit markets. Typically, bond yields — the amount of yield earned on safe US Treasuries — expand during periods of political uncertainty as investors seek higher compensation for taking on more risk. When the war started, that’s what happened. But now, sales are back to their pre-war historic lows. The ICE BofA Corporate Index spread on assets was about 0.88% on March 26. That is almost unchanged from February 27, before the war began, according to research by Bank of America’s Yuri Seliger and Sohyun Lee.
Meanwhile, US stocks have fallen 7.4% since the start of the war, as measured by the Morningstar US Market Index. The market slipped on Thursday and Friday as the war showed no signs of abating. That included a rise in the Morningstar Global Semiconductor Equipment and Materials Index due to investor expectations of a long-term shortage of helium, which is needed for chip production.
However, the market share is still up almost 13% from where it was last year, which is a solid gain.
So what are the risks?
- The war is not over yet.
- Inflation is rising. Growth is also at risk. Now the Organization for Economic Co-operation and Development predicts that US inflation will average 4.2% this year, or more than 1 percent more than its rate at the end of last year. It said its forecasts face “significant” risk if there are permanent restrictions on exports from the Middle East.
- Energy prices are is rising. Brent crude ended last week at $112 a barrel, up about 54% from before the war. West Texas Intermediate was just shy of $100, up 48%.
- Expectations are increasing for an interest rate hike in 2026, as opposed to a decrease expected earlier this year.
- Stock market prices are not very attractive. The price/earnings ratio of the US Market Index is 22.1. For context, the five-year average is 20.1, and the 10-year average is 19.7. The forward P/E for the Nasdaq 100 is 32, although the index is down about 10% from its October peak.
Jim Masturzo, the chief investment officer of Research Affiliates, says that if the Strait of Hormuz “remains closed for the foreseeable future, this could be a disaster for the world economy. However, Masturzo thinks that the probability of this is only 5%, since “the consequences of a long-term war are so bad that cool heads have to be there and find the blame.” Therefore, he does not believe that the market “is not matter too much now.”
Dominic Pappalardo, chief multi-asset analyst for Morningstar Wealth, highlights the negative sentiment that may come with continued selling of bonds and stocks: “If the conflict continues for a long time, the stock market will start to pull back.
Fertilizer Supply Proposal
The conflict is also causing fertilizer supply problems, as Gulf producers play a key role in the global nitrogen fertilizer trade. It also raises concerns about the global food crisis as farmers enter the spring planting season.
Since the start of the conflict, nitrogen prices are up about 50%, and phosphate prices are up about 10%, according to Morningstar senior equity analyst Seth Goldstein. “The timing couldn’t have been worse,” he says. “This is the peak demand that matches the supply curve. “Even if the conflict ends tomorrow, I don’t think we’ve changed from the supply scare.” He lists these reasons:
- Phosphate and nitrogen sit in the docks.
- The largest producer of nitrogen is natural gas. Qatar’s logistics infrastructure has been severely damaged.
- Meanwhile, Morocco (a major source of phosphate) from the Middle East, and the country may have to shut down production if the war continues.
What the War Means for Fertilizer Stocks
The war has made fertilizer producers high. But Mosaic MOS, one of the world’s largest phosphate and potash producers, still looks cheap according to Morningstar’s rating, trading at a 35% discount to Goldstein’s fair value estimate. That’s because the rise in the price of phosphate has led to nitrogen, which has caused investors to worry that the high costs of sulfur and ammonia are hurting the company’s margin. Investors “don’t understand the situation,” he says, because only a third of Mosaic’s ammonia costs depend on the market price. He thinks that Moses’ shares will be the “big beneficiary” once the investors realize their mistake.
Goldstein recently raised his bids for Mosaic and other American fertilizer companies. Both CF Industries CF, North America’s largest nitrogen producer, and Nutrien NTR, the world’s largest fertilizer producer, are trading close to their fair value.
Report of Activities on Deck
“Without work, all life is wasted,” begins a quote by Albert Camus. The January jobs report showed a surprise job loss, and the unemployment rate rose, pointing to renewed weakness in early 2026 hiring.
On April 3, the Bureau of Labor Statistics will report data for March. However, the markets will be closed for the New Friday holiday. Analysts generally expect nonfarm payrolls to add 57,000 from January’s surprise loss, according to FactSet, and for the unemployment rate to remain unchanged at 4.4%, returning to a “low fire, low hire” situation where firms are cutting back on the number of workers they’re firing and actively hiring.
For the week’s key economic data and business events, check out our weekly market calendar.
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