The impact of the U.S. bombing Iran on the stock market? The world is watching Iran's response | Hiyachiro Okamoto's path to becoming a U.S. stock master | Moneyクリ Monex Securities' investment information and media useful for money.

In the third week of June 2025 (week of June 16), the US Stock Market showed relatively calm price movements at the beginning of the week, but the situation changed dramatically towards the weekend.

On the response to Iran, President Trump stated that he would "make a decision within two weeks," but without waiting for the deadline, early in the morning on June 22 (Sunday) Japan time, he ordered a bombing of Iran's nuclear facilities by the U.S. military. This sudden military action greatly heightened tensions in the Middle East, and the geopolitical concerns that the market had previously recognized as "potential risks" transformed overnight into a "shock of reality." This decision means that President Trump has taken an "extremely risky gamble" that places significant risks on America.

The US Stock Market Amidst Middle East Tensions and Rate Cut Expectations in the Week of June 16

The market was relatively stable as it transitioned into the week starting June 16th, due to a noticeable calm in the Middle Eastern situation and the rekindling of interest in interest rate cuts. In particular, the positive stance shown by Iranian government officials regarding negotiations on uranium enrichment was viewed favorably as a move to avoid escalating tensions.

Furthermore, Fed Board Member Waller stated that "if inflation continues to slow, interest rate cuts could be on the horizon in July," which has supported expectations for monetary policy in the stock market. With these positive factors overlapping and geopolitical uncertainties temporarily receding, investor sentiment has been wrapped in a sense of relief.

That said, looking at the week as a whole, the market has shown a somewhat directionless development. The S&P 500 Index fell 0.15% over the week, while the Nasdaq 100 Index decreased by 0.02%, both remaining only slightly adjusted and essentially landing flat.

After the FOMC, the market lacks direction.

On June 19 (Wednesday), the FOMC (US Federal Open Market Committee) was held, and as expected by the market, the policy interest rate was kept unchanged. The simultaneously released "dot plot (policy interest rate outlook)" indicated two rate cuts within the year, which the market interpreted as "dovish (accommodative monetary policy)."

However, Chairman Powell of the Federal Reserve stated at a press conference that "clear evidence is needed that inflation is consistently declining," maintaining a cautious stance. Therefore, it was not perceived as a rush to cut rates, and a wait-and-see mood spread somewhat. Furthermore, as some economic indicators, such as retail sales, fell short of expectations, concerns about an economic slowdown reignited, and some profit-taking selling was observed in the latter half of the week.

The "realized" geopolitical risks of the Middle East: Deterrence or retaliation... What will Iran's response be?

On the morning of June 22 (Sunday), news broke that the US had carried out airstrikes against nuclear-related facilities in Iran. In a speech at the White House, President Trump stated, "Iran's major nuclear facilities have been completely destroyed. If Iran retaliates, it will face further attacks."

The U.S. military actions are said to have been carried out in conjunction with the Israeli operation "Operation Rising Lion," which began on June 12, and it seems that the thorough destruction of Iran's air defense systems beforehand was the key to the success of the operation.

Whether this airstrike will be a "beginning of the end" that temporarily alleviates tensions in the Middle East, or a "new phase that invites a cycle of retaliation and chaos," largely depends on Iran's response going forward. Iran's Foreign Minister Abbas Araghchi criticized, "The United States has blown away the chance for peaceful dialogue with this use of force," hinting at retaliation.

In an appearance on a US NBC news program, Vice President Pence stated, "We are not fighting Iran itself, but we are fighting the nuclear development program," indicating a willingness for a diplomatic resolution. US Secretary of Defense Hagel also emphasized that "this is not an operation aimed at regime change," but just hours later, President Trump questioned on his social media, "If we can't make Iran a great country again, why shouldn't there be regime change?" He concluded his post with the slogan "MIGA (Make Iran Great Again)."

The situation is currently very fluid, and a state of uncertainty continues.

What is the impact on the stock market, and what are the anticipated negative scenarios?

Now, let's consider the impact this has on the stock market. In the latter half of last week (week of June 16), the VIX index (fear index) exceeded 20, indicating that geopolitical risks are cooling investor sentiment. However, looking at past Middle Eastern crises, there tends to be a pattern where the market recovers after a short-term shock leads to a decline in stock prices, so it cannot be ruled out that a similar pattern may occur this time.

Interestingly, the Israel MSCI stock index has risen by 2.6% since Israel launched a preemptive strike against Iran on June 13 (Friday), reaching an all-time high. The index has already recorded a 79.9% increase starting from October 27, which marks 20 days after the attack by Hamas on October 7, 2023 (approximately 1,200 Israelis killed and around 250 taken hostage).

Accurately predicting the geopolitical developments in the Middle East is extremely difficult, but the strength of the Israeli stock market suggests that a structural transformation in the region may have begun, following the deterrence of Iran's nuclear weapons development capability. The market may be starting to price in signs of a more long-term and fundamental geopolitical realignment, rather than just a temporary military conflict.

Nevertheless, some negative scenarios should be anticipated.

First of all, there are concerns about retaliatory actions by Iran. There is a possibility of direct attacks on US military bases in Israel and the Middle East, or even on the US mainland, as well as indirect attacks by proxy forces such as Hezbollah and the Houthis. Missiles, drones, and even cyber attacks may also be options.

Next, we cannot overlook the impact of rising crude oil prices on the global economy. If tensions around the Strait of Hormuz, through which 20% of the world’s oil demand is said to pass, continue, there is a risk of increased uncertainty in crude oil supply and further price increases. In fact, since the beginning of June, crude oil prices have already risen by more than 20%, raising concerns about a resurgence of inflationary pressures.

Furthermore, there is a possibility that it could cast a shadow on the FRB's monetary policy. If inflation accelerates again and the expectations for a rate cut in July recede, it could create headwinds for the stock market.

Geopolitical risks shaking the market, what attitude do investors need?

In times of increasing uncertainty like this, it’s easy to get overly excited or anxious about short-term price movements. However, that is precisely why it is crucial to maintain a calm perspective and not to waver from a medium- to long-term investment stance.

Looking back at the past, there have been numerous instances where geopolitical risks temporarily shook the market. Nevertheless, each time, the market has recovered and regained its long-term growth trend. Even in situations like this, it is essential to remain grounded and assess the situation objectively, without being swayed by emotions.

When it comes to investing in the US Stock Market, I would like you to have the awareness that capturing the market with a long-term perspective, without being overly swayed by changes in the external environment, will be a decisive factor that influences the ultimate investment results.