Jamie Chisholm

Mon, Jun 16, 2025, 6:30 AM5 min read

Amid the tragedy of the Israel-Iran conflict, stocks are proving stoic. Futures early Monday, as the missile attacks continued, showed the S&P 500 once again reclaiming the 6,000 mark. That’s only about 2% shy of the record high struck in February.

However, there are three possible ways that the Middle East conflagration may still negatively effect the equity market, according to Lori Calvasina, head of U.S. equity strategy research at RBC Capital Markets.

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The first concern is an adverse impact that the Israel-Iran escalation could have on the multiples that investors are prepared to apply to stocks, says Calvasina in a note published late Sunday.

“Similar to what we see with economic policy uncertainty, when national security policy uncertainty rises, P/Es for the S&P 500 have tended to contract,” she says. P/Es refers to the share price to earnings multiples of a stock, or price-to-earnings.

Calvasina reckons this factor is particularly important now because the S&P 500’s P/E multiples didn’t even get cheap during the tariff-induced market tantrum of March and April, and have quickly retuned to levels that are well above long-term averages.

Consequently, the fresh Middle East conflict “comes at a time when stocks should be vulnerable to bad news from a valuation perspective,” she says.

The second issue is the damage the heightened geopolitical tension may wreak upon investor, consumer and business sentiment — which have been showing signs of healing recently after the trade war scare.

According to Calvasina: “These inflections in sentiment, which have been stronger on the investor side than the consumer and small business side, have been a key driver of the recent rally in stocks.” For example, nascent optimism about initial public offerings, and mergers and acquisitions, could falter if market volatility spikes.

And Calvasina notes that corporate transcripts have shown in the past how other events like the Los Angeles fires, bad weather and the flu are said to impact consumer behavior, and she thinks it’s likely investors will be reading about the Middle East tension in future earnings calls.