Actions by the US and Israel trigger global stock markets to enter "risk-averse mode," with energy and defense sectors becoming safe havens for funds

Financial Express APP notes that traders are preparing for a week of global stock market turbulence and risk aversion, following US and Israeli attacks on Iran. With expected declines in airlines and other consumer sectors, market focus shifts to energy and defense companies, seen as potential safe havens.

Middle Eastern market price movements over the weekend hint at future trends. The Saudi Tadawul All Share Index fell 2.2%, with a rebound in oil giant Aramco limiting the decline; Egypt’s main index dropped 2.5%.

Michael Cantrowitz, Chief Investment Strategist at Piper Sandler & Co., said, “The stock market may fully shift to a pattern driven mainly by oil prices. Until oil prices stop rising, equities will remain under pressure.”

This conflict is the latest catalyst for another surge in oil and gas prices. Some estimate that when trading resumes Sunday night, oil prices could jump 10% to 15%. Strategists expect intense military escalation to drive broad capital flows into defensive sectors like utilities and healthcare, which perform steadily during economic turmoil. Meanwhile, high-risk growth stocks and economically sensitive industrial and financial stocks may face selling pressure.

Matt Gertken, Chief Geopolitical and US Political Strategist at BCA Research, pointed out that Monday will see “volatility and sell-offs in tech and cyclical stocks, because, based on current actions, rising energy prices are very likely to harm economic growth. Globally, defensive and energy sectors are expected to outperform the broader market.”

As global stock investors assess the impact of the conflict, here is a sector guide to watch after markets open in Asia, Europe, and the US:

Energy Sector

Due to hedging against conflict, Brent crude rose to its highest level in seven months on Friday, pushing US energy stocks to record highs. Major energy giants like ExxonMobil, Chevron, Shell, TotalEnergies, Repsol, BP, Australia’s Woodside Energy Group, China National Petroleum Corporation listed in Hong Kong, and South Korea’s S-Oil could see further significant gains.

Rob Semer, Portfolio Manager at Tortoise Capital, said, “The question is how Iran’s response will impact global oil supply—at least in the short term, and possibly long term.” He added that if supply isn’t severely disrupted, any price spike could be temporary. In a less likely scenario, a long-term closure of the Strait of Hormuz could push oil prices above $100 per barrel.

Iran has stated it has no intention of closing the strait, which accounts for about 20% of global oil flow, but signs indicate tanker traffic through this critical chokepoint is stalling.

Global turmoil boosts US energy stocks

Semer believes tanker companies will also perform well. Conversely, high oil prices typically squeeze profit margins for refiners like Marathon Petroleum and Valero Energy.

Defense Sector

With increasing global tensions, defense stocks have been rising steadily over the past year, and new conflicts in the Middle East provide another reason for traders to flock to this sector. Investors may focus on major US contractors like Lockheed Martin and Northrop Grumman, European firms Rheinmetall and UK Aerospace, and South Korea’s Hanwha Systems.

Jens-Peter Rieck, Analyst at MWB Research, said, “The market generally views this as positive for European defense stocks, although any movement is likely more driven by sentiment than changes in profit expectations.”

President Trump has urged European and Asian allies to increase security spending and proposed adding about $500 billion to US military expenditure.

Jefferies analyst Sheela Kayanoglu believes the desire to boost military funding could now extend to the Middle East. She noted US contractors will gain most of their new business from the region, which already accounts for a large part of their foreign military sales.

Precious Metals Sector

During periods of geopolitical uncertainty, investors often turn to safe-haven assets like gold and silver, boosting mining stocks. Precious metal prices (especially gold and silver) have surged significantly over the past year and began climbing weeks before the Iran conflict.

Stocks to watch include North America’s Agnico Eagle Mines, Barrick Gold, Newmont, Europe’s Fresnillo and Hochschild Mining, and Hong Kong-listed Chifeng Gold. Given that mining and energy sectors make up about 38% of Canada’s S&P/TSX Composite Index, the index may outperform others on Monday.

Travel and Transportation

Rising oil prices increase fuel costs for airlines and squeeze profits, while conflicts disrupt global travel. US airline stocks fell the most in four months on Friday amid expectations of conflict escalation. Airlines in the Persian Gulf have extended flight suspensions, potentially disrupting the intricate coordination of global flight operations.

Investors will closely watch stocks like American Airlines, Delta, Lufthansa, Singapore Airlines, and Qantas.

Francis Tan, Chief Asia Strategist at Oriental Wealth Management, said, “With Middle Eastern airspace closed and flights to Europe potentially canceled, airline and travel stocks will face direct impacts.”

Traders brace for declines in airline stocks

According to analyst Kayanoglu, Jefferies’ forecast that a $5 change in oil prices by 2026 could impact per-share earnings of Delta and United Airlines by 5% to 10%. For American Airlines, the impact could be as high as 35% in either direction. However, she added that North American airlines with direct exposure to Middle Eastern routes are very limited, with Air Canada’s share only 1.1%.

Hotel operators may also suffer from travel disruptions and reduced demand. InterContinental Hotels Group, which operates over 100 hotels in the region, saw its shares fall 3% in London on Friday.

Industry analyst Lee Krasco pointed out that the closure of Middle Eastern airspace also threatens the profits of freight carriers like FedEx, UPS, and DSV, as longer transit times increase fuel costs. Meanwhile, disruptions in the Red Sea and Suez Canal could lead container shipping companies like Maersk to raise service charges.