BCA Research: It is too early to sell off oil price rebounds or bottom fish the stock market now

Investing.com - BCA Research states that investors should resist the urge to sell oil on rallies or buy stocks on dips, warning that geopolitical shocks related to Iran are still unfolding and could have more far-reaching economic impacts.

BCA Chief Geopolitical Strategist Matt Gertken said, “It’s too early to sell oil on rebounds or bottom fish the stock market. Currently, risk-averse trading should be maintained.”

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Gertken believes the market may be underestimating the scale of the conflict. BCA’s analysis shows that the US and Iran are now “deeply embroiled in conflict, making significant negative economic impacts unavoidable.”

The investment research firm estimates that, after the US targeted key regime elements and threatened the Islamic Revolutionary Guard Corps (IRGC), the weighted probability of a major oil supply shock is between 50% and 87%.

Gertken wrote, “In fact, regional war has already broken out. The Strait of Hormuz is essentially closed to shipping, which means this could be the largest energy shock in modern history,” though the duration and extent of the disruption remain uncertain.

Although Gertken states that Iran’s response so far has been “quite ineffective,” he emphasizes that the country still retains asymmetric capabilities and has strong incentives to escalate the economic costs of the conflict.

The strategist said, “Therefore, we believe the full impact of the war on global energy supply and the economy has not yet materialized, and global financial markets have so far underestimated the development of the situation.”

The main upside risk to the bearish view is a rapid political reversal. Markets might believe President Donald Trump can halt military actions and negotiate, but Gertken warns that, given Washington’s stated goal of weakening the regime, it may already be too late for a clean exit.

Energy remains the key transmission channel. According to BCA data, OPEC accounts for about 31% of global oil production, and roughly one-fifth of global supply is currently blocked at the Strait of Hormuz. If oil prices stay high, Europe and China will be particularly vulnerable due to their large oil import exposure.

In terms of positioning, Gertken said BCA’s recent trades have emphasized Iran risk, including increasing holdings of US Treasuries, overweight US stocks relative to European and Chinese stocks, and favoring defensive sectors.

The firm plans to maintain its long oil position until confident that Iran can no longer carry out significant attacks on regional infrastructure and shipping. If a major oil shock is avoided, it may later reallocate to international equities, but for now, BCA intends to stay defensive.