After several weeks of very positive market sentiment, geopolitical risk has re-emerged. Acting unilaterally, Israel has initiated Operation Rising Lion.
Israel is now conducting strikes on Iranian nuclear facilities, senior military leadership and critical military infrastructure.
The attack is not entirely surprising. Rumors of Israeli military action have been circulating for weeks. Prior to the raid, the U.S. was removing personnel from Middle East locations.
As of mid-day trading on June 13, 2025, market reaction is relatively muted. Stocks are down slightly with the S&P 500 Index and NASDAQ Composite both trading off less than 1%.
Gold has unsurprisingly rallied, rising just over 1%. U.S. government bonds are basically flat. The yield on the 10-year Treasury remains around 4.4%.
The sharpest move is in oil prices, which have been very volatile and have advanced approximately around 7% as we write.
Energy stocks are performing well and have been for several trading days, as energy investors may have anticipated these events. The Energy Select Sector SPDR ETF (XLE) is up approximately 1% today.
This is the sixth consecutive trading day in which XLE is trading in positive territory. The ETF has advanced about 7% over the last six trading days.
Energy sector investors foresee potential supply disruptions, leading to higher oil prices.
Calls for restraint
While we are monitoring developments closely, we are optimistic that the military actions will not spiral into a broader regional conflict. The great powers of the world appear united in avoiding this outcome.
Notwithstanding strong Trump administration support for Israel, the United States has distanced itself from the Israeli military operation, which deprives Iran a basis to retaliate with attacks on the U.S.
Iran has already attempted to respond with attacks on Israel, with reports of hundreds of drones having been intercepted by Israeli and Jordanian defense systems.
To the extent Operation Rising Lion does not lead to broader conflict, mild short-term volatility could produce a much more desirable long-term outlook.
The goal of the military operation is to reverse whatever progress Iran has made in developing a nuclear capability, which could fundamentally alter the balance of power in the Middle East.
Echoes of 1981
The military strike is reminiscent of Operation Opera, when the Israeli Air Force took out the Osirak nuclear reactor in Iraq in June 1981.
Israel was widely condemned by the international community, although few people nowadays regret that Saddam Hussein’s nuclear ambitions were thwarted.
Operation Opera introduced the world to the Begin Doctrine, named for then Israeli Prime Minister Menachem Begin. Current Prime Minister Benjamin Netanyahu has invoked the same principles as justification for yesterday’s attack.
