Markets are shrugging off the Israel-Iran conflict. Some strategists warn of complacency

Global investors may be underpricing the interaction of a struggle betwixt Israel and Iran, marketplace watchers warned connected Monday, arsenic stocks rallied contempt escalating warfare successful the Middle East.

The 2 determination powers continued trading occurrence connected Monday, marking the 4th consecutive time of warring since Israel launched airstrikes against Iran past week.

Despite the continued warring — with hundreds reported dead — planetary banal markets sustained a affirmative momentum connected Monday, seemingly shrugging disconnected broader concerns astir the conflict.

Russ Mould, concern manager astatine AJ Bell, warned connected Monday that determination was a hazard markets were underpricing "the hazard of a large conflagration successful the Middle East," peculiarly erstwhile it comes to the vigor market.

European shares opened broadly higher connected Monday, with Asia-Pacific stocks and U.S. banal futures besides trading successful the green. Even Middle Eastern indexes saw gains connected Monday, with the Tel Aviv 35 scale past seen trading 1% higher aft falling 1.5% past week.

"This is partially due to the fact that determination are truthful galore moving parts and geopolitical considerations, and partially due to the fact that the imaginable outcomes are truthful unthinkable," Mould said. "In a worst case, lipid and stock prices would beryllium the slightest of our worries."

In a Monday greeting note, David Roche, a strategist astatine Quantum Strategy, warned that the struggle betwixt Israel and Iran "will past longer than the Israeli lightning-strikes that the marketplace is utilized to."

Torbjorn Soltvedtp, main Middle East expert astatine Verisk Maplecroft, agreed, saying an escalation remained of "huge concern."

"What we person present is precise different, and what we're seeing is efficaciously a warfare and an open-ended one," helium told CNBC's "Squawk Box Europe."

"And of course, that is thing that has immense implications, not conscionable for the region, but besides for vigor markets and however they construe what is happening. You know, infinitesimal by infinitesimal and time by day."

Energy markets person moved the astir connected quality of the attacks, arsenic the Israel-Iran struggle stoked proviso concerns.

While Friday marked the biggest single-day gain for crude since Russia's full-scale penetration of Ukraine successful 2022, however, planetary benchmark Brent crude futures — past seen astatine $73.75 a tube — were inactive acold beneath the prices seen successful the aftermath of Moscow's incursion into Ukrainian territory.

"A lull is the astir apt result earlier aboriginal escalation erstwhile Iran rejects US Trump's overtures," Roche said. "The marketplace is apt to mistake the lull for lasting peace. I would usage the lull to bargain into vigor assets arsenic a harmless haven."

Some marketplace watchers are taking a somewhat little pessimistic view, however.

In a enactment connected Monday, Deutsche Bank's Jim Reid noted that portion some Iran and Israel had traded retaliatory blows, they had truthful acold avoided "the astir utmost escalatory steps."

"As geopolitical shocks are becoming much predominant it seems it's present astatine slightest a yearly occurrence that we notation to our equity strategists' enactment connected the interaction of specified shocks and however agelong it takes for the marketplace to retrieve from them," helium said.

"The emblematic signifier is for the S&P 500 to propulsion backmost astir -6% successful 3 weeks aft the daze but past rally each the mode backmost successful different 3," Reid said. "[Our strategists] judge this incidental volition apt beryllium milder than this unless we get notable escalation arsenic they item that equity positioning is already underweight … and a -6% selloff would request it to autumn each the mode to the bottommost of its accustomed range."

Philippe Gijsels, main strategy serviceman astatine BNP Paribas Fortis, told CNBC connected Monday that helium feels the marketplace is close successful not pricing a immense escalation, specified arsenic the U.S. being drawn into the fray, oregon a blockade of the Strait of Hormuz.

The Strait of Hormuz, nestled betwixt Iran and Oman, is simply a captious lipid transit way done which millions of barrels of lipid are transported each day.

"Still, the marketplace absorption has been precise modest, truthful determination is country for disappointment if things were to escalate," Gijsels conceded connected Monday.