There have unfortunately been enough outbreaks of Middle East conflict in recent decades for Wall Street to have compiled a playbook for investors to navigate them. The standard patterns are being recited this morning, after the weekend’s attacks on Iran and its retaliatory moves, and they should be kept in mind for sure: Regional military conflicts rarely end a bull market (indeed they’ve sometimes coincided with their start, in 1990 and 2003). The conduit from geopolitics to financial markets is the oil price, which typically needs a massive jump to swing the macroeconomic path. The initial retreat from risk assets tends not to last long and has relatively quickly been recouped, so long a the economy was not already in recession or stocks in a bear market (such as after the 9/11 attacks in 2001). The tricky part now is that the markets have already been caught in an uneasy equilibrium, with a clear bullish consensus built on a quickening economy, AI enthusiasm and a “clean” 2026 policy outlook undergoing persistent scrutiny. The current geopolitical jolt comes as financial markets have been confused by overlapping and somewhat contradictory cyclical story lines: A rush to play an early-cycle revival of industrial activity globally, some late-cycle fissures emerging at the riskier end of the credit complex and an expanding end-times anxiety about the potential job-displacing impact of runaway AI development. The early-cycle reacceleration theme remains evident in reinvigorated commodities (even before the conflict-related oil pop). But among the favorite cyclical sectors entering the year, only industrials have truly continued to lead, with financials and consumer discretionary flagging. The Treasury yield curve is no longer steepening and overall yield levels receding toward cycle lows complicates the “run-it-hot” story a bit. The stress in some private-credit portfolios is not so much the result of broad economic weakness as it is a function of marginal borrowers buckling and highlighting a mismatch between the liquidity properties of certain fund vehicles and the underlying loans held by them. Companies in general and households in aggregate are not nearly as leveraged as they were before prior credit-contagion events. Still, the rot always starts at the edges and previously tame public corporate debt spreads have leaked wider. Clearly the shares of alternative asset managers and even the big investment banks got to valuations built for brisk deal flow and few hiccups. AI: Friend turned foe? The AI Armageddon scenario got far more traction than the present realities would seem to warrant, but that’s how it goes when Wall Street is forced by unprecedented tech spending and constant acceleration of reported disruptive capabilities to contemplate a higher chance that both positive and negative “tail” scenarios come to pass. It also doesn’t help that Nvidia’s stellar results are merely a measure of how much free cash flow the best companies in the world are forgoing in order to bet their futures on a game not everyone can win. This is also occurring in a market that has desperately been trying to rebalance away from historic levels of concentration, and as hedge funds are urgently expanding the short side of their portfolios as a means of generating returns from a flattish index. I’ve been consistently skeptical that the “broadening” market, with most stocks outperforming but the largest ones floundering, is something investors should wish for. Bull markets rarely switch away from the core leadership themes – in this case, AI-propelled tech – without badly breaking stride. And a lot needs to go right in other parts of the market if the mega-caps are persistently sold down to buy the median stock. So far, this skepticism has been misplaced. The tidal shift from the few to the many has up to now gone as smoothly as could’ve been hoped, the equal-weight S & P building a massive nine-percentage-point lead over the Nasdaq 100 , some 60% of all S & P 500 members outpacing the index, all while the S & P itself has managed to hold within 3% of its record high. In large part, though, this is thanks to rock-solid sponsorship of the cyclical economic-upturn trade, built on global fiscal largess, tax-policy boost to consumption in America and the industrial-reshoring trade, along with all AI enthusiasm running hard into the memory-chip and adjacent infrastructure beneficiaries. Growth scare Friday’s action, which was shadowed by the prospect of Iran hostilities but not solely driven by it, had a mild “growth scare” tint to it. What had been a clean message of a fast-revving economy entering the year had become a more confused story. Note the way the equal-weighted financial and consumer-discretionary groups have fallen away from industrials. John Kolovos, chief technical strategist at Macro Risk Advisors, noted on Sunday, “While the initial risk-averse moves could easily fade early in the week, the uneasiness of things has been going on for months, and this weekend’s events are a convenient and easy narrative to wrap price action around. But the truth is, oil has been bottoming for a year, and the [U.S. dollar] has been building a floor for over six months. The fragility within equity markets has been going on since at least October, and the rotation within the US equity markets has been unhealthy (staples at new highs while financials break down, not a healthy combo).” But unless and until stocks decisively break down, the chance that this military conflict becomes just another test for the markets to pass can’t be dismissed. Key questions for the week: —Will any tactical tripwires be crossed? Three times this year, the S & P 500 has found a short-term bottom between 6,775 and 6,780, which sits about 1.5% below Friday’s close. A break of the S & P 500’s December low in the early part of a new year is historically a yellow flag for further downside risk; that level is 6,720, about 2.5% below Friday’s close and about 1% underneath the bottom of its year-to-date range. Levels in the 6,500s appear more to represent consequential possible support for the longer-term uptrend, according to several chart readers. That is where the late-summer breakout began and where the index’s upward-sloping 200-day moving average sits. —The iShares Software ETF (IGV) has been messily trying to chop its way to a possible bottom with $80, a few dollars above the recent low, as the key round-number line of engagement. Shades of the SVB Financial crisis in 2023, when the KRE regional-bank ETF plunged to the mid-$30s and then slashed around near $40 for months before a sustained recovery? —Can the Magnificent Seven-type growth stocks begin to act as defense in protection of the tape? The once-dominant tech giants have seen their valuation premiums compress to multi-year relative lows as investors demand a wider margin of safety against the chances that nearly $700 billion in hyperscaler AI capital spending this year won’t deliver a proper return. This, even as they penalize software and various information-economy middlemen for being at risk of sudden obsolescence or margin pressure due to AI tools. —What does a geopolitical recoil from risk mean for one of the sturdiest trends in the market: overseas equities outperforming the U.S.? The iShares ACWI ex-U.S, ETF (ACWX) , tracking the rest of the world, has built up a lead of more than 25 percentage points over the S & P 500 since President Trump’s second inauguration. Since the Saturday attacks on Iran, international indexes have pulled back a bit more than the U.S. market is indicated to decline.