Complacent Investors Risk Misreading Iran War Developments, Analysts Warn

"Complacent" investors risk getting wrong-footed as they continue to misread developments in the Iran war, analysts said after markets reacted to the brief reopening of the Strait of Hormuz on Friday, only for their hopes to be dashed.

Growing investor optimism over an end to hostilities in the Gulf has helped propel stocks higher since a two-week ceasefire was agreed between the U.S. and Iran on April 7. Tehran's announcement on Friday that the Strait was open to shipping spurred a strong market response. The S&P 500 gained 4.5% last week, while the Nasdaq Composite popped 7.2%. The latter also posted its 13th consecutive winning session on Friday, matching a streak not seen since 1992.

But global equity markets faltered on Monday, reversing course as traffic on the Strait once again ground to a halt. The fragile ceasefire is set to expire on Tuesday, and some strategists have warned that investors are at risk of misreading how news about the conflict is reflected in market movements.

Matt Gertken, chief geopolitical strategist at BCA Research, said that investors had adapted to respond to U.S. President Donald Trump's tariff announcements since his "liberation day" last year, but should understand that Trump is not fully in control of events in the Middle East.

"The market is believing this is like 'liberation day' – that President Trump can raise the temperature but then lower the temperature at the perfect time, and that he's the maestro," he told CNBC's "Squawk Box Europe" on Monday. "But we could be in a different situation now, because Iran has been attacked, and they have a higher pain threshold."

Friday's jubilation that the Strait of Hormuz – through which 20% of the world's oil and gas supply passes – had reopened was short-lived, as Iran announced its closure again the following day. The resumption of uninterrupted energy flows is what underpins any sustained stock market recovery, according to investment manager Orbis.

"It's pretty clear to us that equity markets are viewing things with a 'glass half full' view," Patrick O'Donnell, chief investment strategist at Orbis, told CNBC's Europe Early Edition on Monday. "What we're focused on is whether the Strait of Hormuz is actually going to reopen again."

He added that the ramifications of the conflict in the Middle East will have "quite a long-lasting effect" for the global economy and markets. BCA's Gertken also said Trump, whose Republican Party faces an election year, is yet to secure guarantees on Iran's nuclear capabilities — one of the White House's key war aims.

"Over a twelve-month time horizon, investors should be treating this seriously – they shouldn't be complacent about the crisis," he added.

Deutsche Bank also urged caution in a note on Monday. Its head of macro research, Jim Reid, cited an "uncomfortable" comparison with recent history — the more-than 10% S&P 500 rally in the early weeks of the war in Ukraine in 2022, as brief optimism over an early negotiated settlement left investors "disappointed." The headline U.S. index went on to fall around 25% from its January peak to its October trough, finishing the year with a decline of 19% — its worst showing since 2008.

"That episode is a clear warning sign," he added.