War in the Middle East has triggered a sharp risk-off reaction across markets at the start of the week, with equity indices sliding, while gold, oil and the U.S. dollar are rising.

However, dig a little deeper and there is notable nuance. Some stocks are higher, such as energy majors and defense companies. Palantir PLTR, the software group used by the U.S. military, is among the few tech gainers in premarket action.

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Meanwhile, U.S. benchmark Treasury prices are lower, pushing up yields BX:TMUBMUSD10Y, as any flight to safety is counteracted by fears of higher inflation from the surging cost of crude.

And it is oil that holds the key to whether this latest bout of geopolitical angst leads to a more damaging correction for stocks, according to Mike Wilson, Morgan Stanley’s chief U.S. equity strategist.

“Historically, geopolitical risk events haven’t led to sustained volatility for equities,” says Wilson in a note published Monday and shared with MarketWatch.

Crunching the numbers, he shows that over one, six and12 months after the events the S&P 500 has been up on average by 2%, 6% and 8% respectively.

By far the worst hit to stocks on a 12-month time frame came from the Yom Kippur war in 1973, as the oil supply crunch it delivered caused a recession.

Consequently, Wilson notes: “The bear case scenario for stocks related to this past weekend’s events in Iran and across the Middle East would be if oil prices were to rise sharply/persistently, thereby posing a risk to the duration of the business cycle.”

History suggests, says Wilson, that for surging oil prices to have such a damaging effect two things must occur: they would have to rise by 75% to 100% on a year-on-year basis and occur during the latter stages of an economic growth cycle.

That’s not currently the case, he says. “As we have discussed previously, we believe we’re in an early cycle environment today as the earnings recovery accelerates.”

Furthermore, at the time of writing his note the year-over-year rate of change on crude was just modestly in positive territory, at around 5%.

“Thus, unless oil prices spike in a historically significant manner and remain elevated, recent events are unlikely to change our bullish view on U.S. equities over the next 6-12 months,” Wilson says.

With earnings improving and the economy expected to pick up speed he has a target of 7,800 for the S&P 500 SPX by the end of this year. If investors are cautious, then his favorite defensive sector is healthcare.

U.S. stock-indices SPX DJIA COMP are lower at the opening bell on Wall Street as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is higher and gold futures GC00 are trading around $5,372 an ounce. .

Concerns about oil supply amid war in the Middle East has pushed U.S. light crude futures CL.1 sharply higher to more than $72 a barrel.

Key asset performance

Last

5d

1m

YTD

1y

S&P 500

6878.88

-0.44%

-0.87%

0.49%

15.52%

Nasdaq Composite

22,668.21

-0.95%

-3.38%

-2.47%

20.27%

10-year Treasury

3.97

-6.70

-30.90

-20.20

-18.90

Gold

5400.1

2.90%

15.36%

24.65%

85.95%

Oil

71.97

8.57%

15.47%

25.36%

5.11%

Data: MarketWatch. Treasury yields change expressed in basis points

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The Organization of the Petroleum Exporting Countries and its allies agreed to a larger-than-expected increase in oil production next month in the wake of the U.S. and Israeli strikes on Iran.

Shares of Lockheed Martin LMT and RTX RTX are jumping as the U.S. military is using up significant amounts of ordnance in its bombing of Iran.

Shares of airlines like United UAL and American AAL are down on fears of travel disruption caused by the Iran conflict and the increasing cost of fuel.

Lumentum shares LITE are sharply higher after Nvidia NVDA announced a $2 billion investment in the optics technology company.

Berkshire Hathaway BRK.B on Saturday released its first annual report without Warren Buffett at the helm, revealing it had reduced its cash pile.

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Companies reporting earnings after the closing bell on Monday include Credo Technology CRDO and MongoDB MDB.

U.S. economic data due Monday include S&P final U.S. manufacturing PMI for February, released at 9:45 a.m. Eastern, followed at 10:00 a.m. by the ISM manufacturing report for February.

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The average number of years a company remains in the S&P 500 index keeps declining, notes Torsten Slok, Apollo’s chief economist. He cites a number of reasons for this. First, particularly pertinent to current concerns, is thar “creative destruction operates more rapidly,” shortening the time a company may remain large and competitive enough to stay in the S&P 500. Second: “Technological innovation (IT, internet, AI, cloud, mobile) creates new business models that scale quickly and displace incumbents before they can adapt,” he says. And third, M&A and private equity activity more regularly remove large firms from public markets via buyouts or mergers, according to Slok.

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

Ticker

Security name

NVDA

Nvidia

TSLA

Tesla

PLTR

Palantir Technologies

TSM

Taiwan Semiconductor Manufacturing

GME

GameStop

MSFT

Microsoft

AMD

Advanced Micro Devices

XOM

Exxon Mobil

AMZN

Amazon.com

NFLX

Netflix

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Allegations of insider trading emerge over prediction-market bets tied to Iran conflict