"World's Largest Asset Manager" President: Investors are underestimating the risks, even if the Iran war ends quickly

Ask AI · Why is the market pricing Iran war risk out of step with historical experience?

BlackRock’s CEO issued a warning that the market may be significantly underestimating the economic impact of a war with Iran.

According to Bloomberg, BlackRock CEO Rob Kapito said Thursday that even if a war with Iran ends in the short term, the impact on economic growth and inflation will continue, and that investors’ current optimistic assumptions clearly underestimate the risks. He warned that oil prices could still spike to $150 per barrel, because the damaged supply chain needs time to get back to normal operations.

At the same event, Apollo Global Management CEO Jim Zelter also sounded a warning, saying that a protracted conflict would significantly increase the risk of the U.S. economy falling into a recession and would threaten the credit cycle. He noted that U.S. consumers have already shown clear signs of financial stress, and confidence continues to slide.

The above remarks have intensified concerns in the market about investors’ overly optimistic sentiment. Since the war broke out nearly a month ago, the U.S. stock market S&P 500 has fallen by less than 5%, while the performance of traditional safe-haven assets such as gold and Treasuries has also shown an obvious divergence from historical patterns.

Market pricing is out of step with historical patterns

At an Asia-Pacific financial and innovation conference in Melbourne, Kapito said that the market’s reaction to Iran war risk today differs significantly from historical experience.

He pointed out that in past similar conflicts, investors’ typical playbook was to buy short-term U.S. Treasuries, buy gold, and short the stock market. However this time, those traditional defensive trades have failed to work as expected—gold is down nearly 15%, U.S. Treasury prices have also fallen due to inflation concerns triggered by higher oil prices, and the S&P 500’s decline has been less than 5%.

Kapito said his biggest concern is that investors are not seriously assessing the conflict’s potential impact, but instead are simply assuming an optimistic outcome. “If this conflict lasts a week, six months, or a year—what does that mean for the company I hold?” he said.

Even if the war ends, the economic shock is hard to dissipate quickly

Kapito warned that even if the war is declared over tomorrow, oil prices could still climb to $150 per barrel, because the supply chain affected by the shock needs time to return to full-capacity operations.

He further estimated that this conflict could drag down economic growth by as much as two percentage points, while pushing inflation up by a similar magnitude. This judgment suggests that the market’s current pricing of the war’s impact may be far from fully reflecting the deep, ongoing effects of supply chain disruption on the global economy.

Bloomberg previously reported that JPMorgan strategists also pointed out that investors have shown excessive complacency about the Iran war.

Despite issuing the above short-term risk warnings, Kapito said he remains optimistic about the long-term outlook. He cited the advancement of artificial intelligence and the rise of the private markets as important long-term tailwinds for investors, and said these structural trends will provide ongoing support for the market.

U.S. consumer confidence under pressure, recession risk rising

Apollo’s Jim Zelter also shifted the focus to the U.S. consumer end. He said that consumers, who have been supporting the U.S. economy for the past several years, are now showing clear signs of financial strain—consumer confidence has continued to weaken over the first two months of this year, and further increases in oil prices will erode their real purchasing power even more.

“This isn’t a rate shock in the true sense; it’s a confidence shock in consumption spending from the world’s largest economy,” Zelter said. He warned that if the conflict continues, the risk of a U.S. recession would rise significantly, and the credit cycle would face even greater pressure.