Stocks and Bonds Face a Test as Iran Conflict Stirs Markets

The recent conflict involving Iran shook Wall Street, but it did not cause a collapse. Instead, it highlighted the weaknesses of investment strategies that rely on spreading risk to protect against market turbulence. During the week, shares and government bonds fell together. Oil prices climbed sharply, and supply worries pushed inflation expectations higher. As a result, Treasury yields rose instead of falling, breaking the usual pattern that investors expect during crises.This combination produced the worst week for both stocks and bonds since the tariff worries in April. Investors were uncertain whether rising prices or a slowing economy posed the bigger danger. The episode shows that diversification alone cannot guard against all types of shocks. Market participants need to rethink how they manage risk when new, unexpected events arise.