Fundstrat's Tom Lee says he is not surprised by market's resilience after U.S. attack on Iran

The market exhibited a mild reaction to the United States' bombing of Iranian nuclear sites, with major averages remaining largely steady and oil prices easing after initial overnight highs. Tom Lee of Fundstrat Global Advisors attributed this resilience to a 'sell the buildup, buy the invasion' dynamic, noting pre-existing market nervousness and an elevated VIX. He views this as the market passing a significant stress test, which strengthens the case for improved stock performance in the latter half of the year.

Analysis

Despite a significant geopolitical escalation involving the U.S. bombing of three Iranian nuclear sites, the market reaction was notably subdued, with major averages remaining steady. According to Tom Lee of Fundstrat Global Advisors, this resilience is not unexpected and aligns with the adage to “sell the buildup, buy the invasion,” suggesting that significant derisking had already occurred. This is supported by the Cboe Volatility Index (VIX) trading at an elevated level of around 21, a one-month high, prior to the market's calm response. Lee posits that the market has effectively passed a major stress test. The fact that oil prices did not surge to predicted levels of $120 and equities avoided a sharp decline—outcomes previously considered plausible for such a 'Black Swan' event—is interpreted as a strong bullish signal for underlying market health, strengthening the case for positive stock performance into the year's end.

Key Decisions for Investors

• The market's ability to absorb a significant geopolitical shock suggests that prior derisking has created a supportive backdrop, potentially warranting a constructive outlook on equities for the latter half of the year.
• Given that the VIX was already elevated and oil prices remained contained, investors could interpret this as a sign that peak fear has been priced in, potentially signaling an opportune moment to consider adding to risk-on positions.
• This event serves as a passed 'stress test' for the market, which may diminish the perceived impact of future geopolitical risks and reinforce the bull case for investors maintaining long-term equity exposure.