Iran war: What’s driving market sentiment?

Markets are responding less to the calendar of the conflict and more to whether it appears contained. Investors initially feared a broader shock to risk assets, but pricing now suggests the market does not expect an open-ended escalation.

That shift matters because sentiment often improves when outcomes look better than worst-case expectations. Even with geopolitical uncertainty still high, markets seem focused on whether conditions are stabilizing rather than worsening.

The main opportunity is for risk assets to recover if the conflict remains limited and economic damage stays contained. The key risk is that any sign of spillover could quickly reset expectations and pressure sentiment again.