"World's Largest Asset Manager" President: Investors are underestimating the risks, even if the Iran war ends quickly

BlackRock’s President Issues Warning, Market Pricing of Economic Impact from Iran War May Be Significantly Underestimated.

According to Bloomberg, BlackRock President Rob Kapito stated on Thursday that even if the Iran war ends in the short term, the impact on economic growth and inflation will persist, and there is a significant risk that investors’ current optimistic expectations are underestimated. He warned that oil prices could still skyrocket to $150 per barrel, as the damaged supply chains will take time to return to normal operations.

Jim Zelter, President of Apollo Global Management, also issued a warning at the same event, stating that a prolonged conflict would significantly increase the risk of the U.S. economy falling into recession and threaten the credit cycle. He pointed out that U.S. consumers are showing clear signs of financial stress, with confidence continuing to decline.

These statements have intensified concerns in the market about investors’ excessive optimism. Since the outbreak of the war nearly a month ago, the S&P 500 index has declined by less than 5%, while traditional safe-haven assets like gold and U.S. Treasuries have shown a clear divergence from historical patterns.

Market Pricing Disconnected from Historical Trends

Kapito stated at the Asia-Pacific Financial and Innovation Forum in Melbourne that the current market response to the risk of the Iran war shows significant differences from historical experiences.

He noted that in previous similar conflicts, investors typically reacted by buying short-term U.S. Treasuries, buying gold, and shorting the stock market. However, this time, these traditional defensive trades have not performed as expected—gold has dropped nearly 15%, U.S. Treasury prices have fallen due to inflation concerns caused by rising oil prices, and the S&P 500 index has declined by less than 5%.

Kapito expressed his greatest concern is that investors are not seriously examining the potential impacts of this conflict but instead are directly presuming an optimistic outcome. “What does this conflict lasting a week, six months, or a year mean for the companies I hold?” he said.

Even if the War Ends, Economic Impact Will Not Quickly Dissipate

Kapito warned that even if the war were to be declared over tomorrow, oil prices could still surge to $150 per barrel, as the impacted supply chains will require time to return to full operational capacity.

He further estimated that this conflict could drag down economic growth by as much as two percentage points while pushing inflation up by a similar magnitude. This assessment implies that the current market pricing of the war’s impact may not adequately reflect the deep-rooted effects of sustained supply chain disruptions on the global economy.

Bloomberg previously reported that JPMorgan strategists had also indicated that investors are exhibiting excessive complacency regarding the Iran war.

Despite issuing such short-term risk warnings, Kapito stated that he remains optimistic about the long-term outlook. He cited the development of artificial intelligence and the rise of private markets as important long-term tailwinds for investors, believing that these structural trends will provide ongoing support for the market.

U.S. Consumer Confidence Under Pressure, Recession Risk Rising

Apollo’s Jim Zelter shifted the focus to the U.S. consumer side. He stated that consumers, who have supported the U.S. economy for the past several years, are now showing clear signs of financial pressure—consumer confidence has continued to weaken over the first two months of this year, and further increases in oil prices will erode their real purchasing power even more.

“This is not a true interest rate shock, but a confidence shock on consumer spending in the world’s largest economy,” Zelter said. He warned that if the conflict continues, the risk of the U.S. economy falling into recession will significantly increase, and the credit cycle will face greater pressure.

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