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Opinions4 hours ago· 3 min read

Iran Conflict Risk Is Spiking. Is Your Portfolio Ready?

The market is sleeping on a major geopolitical catalyst. I'm adjusting my S&P 500 price forecast and here's the hedge I'm putting on now.

I was neck-deep in a spreadsheet this morning, building out my earnings season preview models, when the wire about the expiring Iran ultimatum hit my screen. Everything else suddenly felt trivial. Wall Street is obsessing over hundred-billion-dollar market caps and whether the Fed will cut by 25 or 50 basis points, while the Strait of Hormuz could be closing. This is a classic case of the market focusing on the spreadsheet and ignoring the map. And it's a mistake.

This isn't just another headline. We have active diplomacy running in parallel with a very visible military buildup. That's a combustible mix. When diplomacy fails to bridge fundamental gaps—and let's be honest, it has so far—the military option gets priced in fast. My concern is that the market's implied probability for conflict is near zero. The VIX is sitting below 15, which feels dangerously complacent. It reminds me of what Jake Morrison wrote last week about sentiment getting way ahead of itself.

The immediate impact is obvious: oil. A real conflict could easily send Brent crude screaming past $100 a barrel. That's a stagflationary shock the global economy simply can't handle right now. My base-case S&P 500 price forecast for year-end was around 5,300, but a sustained oil shock would put 4,800 firmly in play. It would also trigger a violent rotation in the ongoing growth stocks vs value stocks debate, crushing high-duration tech and sending money flying into energy and defense. I know my friend Alex Volkov has been bullish on the energy sector for a while; this would be jet fuel on that fire.

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I'm not blowing up my portfolio. But I am taking risk off the table and buying some cheap insurance. This is what I've done in the last hour:

Trimmed 10% from my high-beta tech holdings (names like SNOW, NET).
Added to my core energy position in the XLE ETF.
Bought out-of-the-money SPY puts expiring in 45 days. It's a small position, a lottery ticket that pays off big if things go south.

Complacency is the most expensive position in a trader's book. Right now, the market is leveraged long on it.

— Sarah Chen

This could all blow over. Diplomacy could win. But my job isn't to hope for the best; it's to prepare for the worst. The market is giving us a chance to hedge against a significant tail risk for pennies on the dollar. I’m taking it. Are you pricing in a geopolitical shock, or are you just focused on next week's CPI print?