Core Viewpoint - The article discusses the significant market turmoil following the outbreak of the Iran conflict, highlighting a shift in investor sentiment from expecting a quick resolution to recognizing the potential for a prolonged and damaging war, which has led to a reassessment of monetary policy expectations and market dynamics [2][3][21]. Market Impact - Global bond markets experienced severe declines, with the U.S. 10-year Treasury yield rising by 13.4 basis points in a single day and over 10 basis points for the week, while the 5-year yield surpassed 4% for the first time since July [5]. - European bond markets also faced pressure, with the UK 10-year yield increasing by 17.7 basis points, reaching 5% for the first time since 2008, and Germany's 10-year yield hitting a new high of 3.043% [6]. - Gold prices saw a dramatic drop, with spot gold falling over 10% and COMEX gold futures declining more than 11%, marking the largest weekly drop since March 1983 [7][8]. Investor Sentiment - Analysts indicate that the current market conditions reflect a fundamental shift in pricing logic, with investors now facing a sustained threat rather than a temporary price shock [3][4]. - The market's perception of the Federal Reserve's policy path has drastically changed, with a 50% probability of rate hikes by 2026 being priced in, contrasting with previous expectations of rate cuts [16][18]. Economic Outlook - The ongoing conflict is expected to increase recession risks, as the energy shock is deemed unprecedented, with no straightforward fiscal or monetary policy solutions available [13]. - The European Central Bank is also in a challenging position, facing inflation driven by energy costs while needing to support growth through potential easing measures [19]. Defensive Strategies - Institutional adjustments are underway, with firms like Societe Generale reducing global equity allocations and increasing commodity exposure, while BCA Research recommends raising cash positions and lowering stock allocations [24]. - Historical patterns suggest that U.S. equities typically bottom out around the 15th trading day following geopolitical shocks, with the S&P 500 currently down approximately 5.5% since the conflict began, indicating it may still be in a vulnerable position [25][26].