Markets Update June 2025 - Trump's risky calculation: how the Iran conflict is becoming a moment of destiny

Israel and now the USA have recognized the situation and taken advantage of it: Iran is in a precarious position. Its allies in the region are enormously weakened, the country's air defenses no longer exist de facto and the Israeli secret service has successfully infiltrated the country.

By entering his country into the conflict, Trump is not only taking a major risk in terms of foreign policy, but also domestically. Military interventions by the USA are extremely unpopular among the isolationist MAGA movement. If the war with Iran continues, reaches new levels of escalation and involves the USA more deeply, this could mean massive political damage for Trump. If there is no significant escalation because Iran is too weak militarily, it would be a brilliant move by Trump that would bring him a lot of recognition across party lines. With a focused military strike, he would have set back the Iranian nuclear program by at least years and thus eliminated an important factor of uncertainty in the Middle East for the time being.

At the moment, Trump's risky calculation seems to be working. Iran's reaction was clearly de-escalating. The country merely launched a restrained attack on the US military base in Qatar. This was followed by a promise to adhere to the agreed call to arms. Nevertheless, the conflict is not yet over and a new escalation is still possible. The following actions by Iran would be conceivable in a risk scenario: extensive attacks on US military bases in the Middle East, including with the help of the remaining allies and proxies, as well as attacks on oil facilities in neighboring countries, including a closure of the Strait of Hormuz - through which up to a third of the world's crude oil is transported. Whether Iran - after a brief consolidation phase - will consider a further escalation essentially depends on its remaining military potential. This appears to be very limited. However, it is impossible to know what capacities Iran still has up its sleeve.

Against this backdrop, professional investors should hedge their portfolios against geopolitical risks with gold and energy commodities as part of their tactical asset allocation - despite the recent easing on the markets.

European equities' lead is melting away

The relative weakness of European equities compared to US stocks has been striking in recent weeks. On closer inspection, this development is not surprising. Since the beginning of the year, European shares have outperformed their US counterparts by more than 20% in euro terms. Germany's leading index, the Dax 40, was even 30% ahead of the S&P 500 during this period. There has not been such a brilliant rotation into European equities in recent decades. It therefore seems obvious that this was an exaggeration that is now being partially reversed - after all, the fundamental characteristics of the European and US markets have not changed significantly. In previous years, the US stock markets had built up an exceptionally high valuation premium compared to their European counterparts. This was significantly reduced in 2025, as the reputation of the US as a reliable investment location has suffered considerably under President Trump.

Now it's “back to square one”. European companies must now convince fundamentally and increase their profitability and efficiency. This is the only way to establish their relative strength in the long term. Whether and to what extent they will succeed remains to be seen. Against this backdrop, it is advisable not to underweight US stocks too much in order not to give away the advantages of an internationally diversified investment strategy.