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U.S. Strikes Raise Hormuz Risks: ETF Areas to Win/Lose
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Key Takeaways
Oil gains could benefit energy ETFs as Hormuz tensions disrupt supply.
Defense ETFs may gain as geopolitical risks boost spending expectations.
A hawkish Fed could pressure small-cap and financial ETFs.
The U.S. military struck Iranian rocket launchers on Sunday after detecting preparations to deploy sea mines in the Strait of Hormuz, ending more than a month of relative calm, per Bloomberg, as quoted on Yahoo Finance.
U.S. Central Command said Islamic Revolutionary Guard Corps forces were preparing to launch rockets carrying mines into the waterway. The United States had completed mine-clearing operations on key shipping routes in the strait just a week earlier.
Note that the Strait of Hormuz is an international waterway through which one-fifth of the world's oil and liquefied natural gas flowed before the war began.The United States last fired missiles at Iranian targets in late July.
Diplomacy Remains Possible
Iranian Foreign Minister Abbas Araghchi said renewed talks with Washington remain possible following discussions with Qatar, a mediator in the conflict. However, he argued that progress depends on the United States recognizing that economic pressure alone will not force Iran into concessions.
In any case, the United States has been intensifying efforts to economically isolate Iran. U.S. Treasury Secretary Scott Bessent launched “Operation Economic Outcast,” a sanctions campaign aimed at cutting Iran off from the global economy.
ETFs to Gain/Lose
Against this backdrop, below we highlight a few ETF areas that could gain or lose in this scenario.
Energy ETFs to Soar?
Energy ETFs could be among the biggest beneficiaries. Oil prices climbed more than 2% early Monday after the U.S. strike on Iran. Higher crude prices generally improve the earnings outlook for U.S. oil and gas producers. While ETFs like United States Brent Oil Fund LP (BNO - Free Report) and United States Oil Fund LP (USO - Free Report) are likely to gain, broad energy ETFs such as Energy Select Sector SPDR Fund (XLE - Free Report) are also well-placed.
Defense ETFs to Gain?
The geopolitical backdrop could also support defense ETFs. Any escalation or prolonged standoff could keep defense spending and weapons demand in focus. President Trump’s Fiscal Year 2027 budget proposes a record-breaking $1.5 trillion for the U.S. military— marking a huge 42% increase, per Politico. ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) could therefore remain on investors’ radar.
Inflation Could Complicate Fed’s Outlook?
A sustained oil-price jump would trigger global inflation and eventually affect consumer spending and business costs. Meanwhile, Fed Chair Kevin Warsh indicated on Friday that the central bank needs to control inflation.
Markets started pricing in his views by raising the probability of a September rate increase to 57%, sending short-term Treasury yields sharply higher and flattening the curve. This creates a potential headwind for rate-sensitive ETF areas like the small-cap ETF iShares Russell 2000 ETF (IWM - Free Report) .
Financials ETFs like State Street Financial Select Sector SPDR ETF (XLF - Free Report) will also likely face pressure from a flattening yield curve. Although the tech sector generally performs better when interest rates are lower, its performance is also heavily influenced by long-term Treasury yields.
Geopolitical tensions are likely to keep long-term bond yields in check. Hence, ETFs like State Street Technology Select Sector SPDR ETF (XLK - Free Report) should not feel the pinch much. And if the Fed hikes rates to counter sticky inflation, niche ETFs like Simplify Interest Rate Hedge ETF (PFIX - Free Report) should gain.
Gold ETFs: A Mixed Bag Scenario
Gold – the traditional safe-haven asset – could also attract investors if the Iran standoff becomes more prolonged. SPDR Gold Trust (GLD - Free Report) could gain from heightened geopolitical uncertainty. While a hawkish Fed and the resultant uptick in the U.S. dollar could weigh on gold, continued U.S.-Iran tensions should provide a floor for any likely decline in gold prices.
Bottom Line
Any price gains are likely to be short-lived, as the door to diplomacy is not fully closed. As for the Fed's next move, the decision will depend on the labor market as well as inflation data.
Analysts are ???forecasting a gain of 58,000 in jobs, following July's shocking decline of 23,000, with unemployment holding at 4.1%, per Reuters, as quoted on Yahoo Finance. JPMorgan chief U.S. economist Michael Feroli said the bank still expects a rate hike in December, although a September hike remains possible, per the above-mentioned source.
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U.S. Strikes Raise Hormuz Risks: ETF Areas to Win/Lose
Key Takeaways
The U.S. military struck Iranian rocket launchers on Sunday after detecting preparations to deploy sea mines in the Strait of Hormuz, ending more than a month of relative calm, per Bloomberg, as quoted on Yahoo Finance.
U.S. Central Command said Islamic Revolutionary Guard Corps forces were preparing to launch rockets carrying mines into the waterway. The United States had completed mine-clearing operations on key shipping routes in the strait just a week earlier.
Note that the Strait of Hormuz is an international waterway through which one-fifth of the world's oil and liquefied natural gas flowed before the war began.The United States last fired missiles at Iranian targets in late July.
Diplomacy Remains Possible
Iranian Foreign Minister Abbas Araghchi said renewed talks with Washington remain possible following discussions with Qatar, a mediator in the conflict. However, he argued that progress depends on the United States recognizing that economic pressure alone will not force Iran into concessions.
In any case, the United States has been intensifying efforts to economically isolate Iran. U.S. Treasury Secretary Scott Bessent launched “Operation Economic Outcast,” a sanctions campaign aimed at cutting Iran off from the global economy.
ETFs to Gain/Lose
Against this backdrop, below we highlight a few ETF areas that could gain or lose in this scenario.
Energy ETFs to Soar?
Energy ETFs could be among the biggest beneficiaries. Oil prices climbed more than 2% early Monday after the U.S. strike on Iran. Higher crude prices generally improve the earnings outlook for U.S. oil and gas producers. While ETFs like United States Brent Oil Fund LP (BNO - Free Report) and United States Oil Fund LP (USO - Free Report) are likely to gain, broad energy ETFs such as Energy Select Sector SPDR Fund (XLE - Free Report) are also well-placed.
Defense ETFs to Gain?
The geopolitical backdrop could also support defense ETFs. Any escalation or prolonged standoff could keep defense spending and weapons demand in focus. President Trump’s Fiscal Year 2027 budget proposes a record-breaking $1.5 trillion for the U.S. military— marking a huge 42% increase, per Politico. ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) could therefore remain on investors’ radar.
Inflation Could Complicate Fed’s Outlook?
A sustained oil-price jump would trigger global inflation and eventually affect consumer spending and business costs. Meanwhile, Fed Chair Kevin Warsh indicated on Friday that the central bank needs to control inflation.
Markets started pricing in his views by raising the probability of a September rate increase to 57%, sending short-term Treasury yields sharply higher and flattening the curve. This creates a potential headwind for rate-sensitive ETF areas like the small-cap ETF iShares Russell 2000 ETF (IWM - Free Report) .
Financials ETFs like State Street Financial Select Sector SPDR ETF (XLF - Free Report) will also likely face pressure from a flattening yield curve. Although the tech sector generally performs better when interest rates are lower, its performance is also heavily influenced by long-term Treasury yields.
Geopolitical tensions are likely to keep long-term bond yields in check. Hence, ETFs like State Street Technology Select Sector SPDR ETF (XLK - Free Report) should not feel the pinch much. And if the Fed hikes rates to counter sticky inflation, niche ETFs like Simplify Interest Rate Hedge ETF (PFIX - Free Report) should gain.
Gold ETFs: A Mixed Bag Scenario
Gold – the traditional safe-haven asset – could also attract investors if the Iran standoff becomes more prolonged. SPDR Gold Trust (GLD - Free Report) could gain from heightened geopolitical uncertainty. While a hawkish Fed and the resultant uptick in the U.S. dollar could weigh on gold, continued U.S.-Iran tensions should provide a floor for any likely decline in gold prices.
Bottom Line
Any price gains are likely to be short-lived, as the door to diplomacy is not fully closed. As for the Fed's next move, the decision will depend on the labor market as well as inflation data.
Analysts are ???forecasting a gain of 58,000 in jobs, following July's shocking decline of 23,000, with unemployment holding at 4.1%, per Reuters, as quoted on Yahoo Finance. JPMorgan chief U.S. economist Michael Feroli said the bank still expects a rate hike in December, although a September hike remains possible, per the above-mentioned source.