If the gains do continue, it could feed into headline price pressures. U.S. one-year breakeven rates, a market measure of inflation expectations, reached the highest since September on Monday before easing.

For now though, the recent rise “has been too small to have a material effect on growth and inflation outcomes,” according to Andrew Milligan, head of global strategy at Aberdeen Standard. “Looking ahead, the key issue will be the ability of companies to deliver profits growth ahead of expectations -- or not.”

Retaliation

Investors are in wait-and-see mode even as Iran vowed retaliation against the U.S. airstrike, and says it will defy limits on uranium enrichment. In a sign that the showdown may be widening, the Iraqi parliament voted to expel American troops from the country.

While money managers have yet to panic, the new-year bull is in retreat. Classic defensive trades have returned after taking a backseat last quarter. High-beta shares are losing ground to comatose names. Emerging-market stocks are trailing again after reaching an 18-month high.

Some of this may have to do with the state of assets on the way into this geopolitical flare-up. The escalation arrived in an equity market that some already considered frothy -- the S&P 500 was at an all-time high, hedging was near multi-year lows, and mom-and-pop traders were regaining their mojo. After major assets handed investors the best annual returns in a decade in 2019, investors are mulling whether to take profits before declines deepen.

“We have been warning that a lot of good news has now been priced into financial assets,” said Milligan at Aberdeen Standard, which oversees $669 billion.

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Mark Haefele, chief investment officer at UBS Wealth Management, puts his own relative calm down to the lessons of history. Previous bouts of political turmoil have had only temporary impact on wider markets, he argues.

“Individual geopolitical risks tend not to be sufficient to drive a sustained downturn in markets, and it is important for investors to retain a long-term focus,” he said. More lasting effects are “confined to local markets and assets that are directly impacted by the tension,” he said.