By Jules Rimmer
Portfolios don't need another tech stock in this environment, says Marko Papic
The duration of the conflict may rest almost entirely on Iran's drone capabilities and those of the U.S. military to suppress them.
What's the immediate upshot of the initiation of hostilities in Iran over this past weekend for risk assets? One strategist believes it calls for a tactically underweight stance on equities in the short term, for continued strength in energy and a further selloff in tech shares.
Marko Papic, the chief strategist for the independent global research house BCA Research, in a note fired off Saturday as the first attacks on the Iranian regime began outlined his views on how investors should approach the crisis.
Papic highlighted three especially important signals for investors to follow in the near term.
First, the behavior of the dollar DXY. BCA contends that if it fails to attract a safe-haven bid during this crisis, then this is a &#34;death knell for the dollar on a cyclical time horizon.&#34; If not now, when? So far, the dollar index has only firmed up slightly.
If the U.S. dollar fails to attract a safe-haven bid during this crisis, that represents a 'death knell for the dollar on a cyclical time horizon.'Marko Papic, BCA Research
Second, Papic is watching industrial metals, particularly copper (HG00), for any indication of the macro narrative shifting from what he calls &#34;tech rotation and/or SaaStrophy&#34; to outright recession. So far in Monday trading, copper futures have barely budged.
Third, overall risk sentiment will, Papic maintains, be impacted by the conflict, and he thinks the selloff in tech will be exacerbated. Why? &#34;Because the world does not need another American SaaS (software as a service) company right now. Portfolios need industrials XLI, materials XLB and energy stocks XLE as well as commodities.&#34;
Back in January, in the immediate aftermath of Nicolás Maduro's rendition from Venezuela, the team at BCA initiated long positions in Brent futures (BRN00) and an exchange-traded fund offering exposure to U.S. oil equipment and service companies IEZ. As the U.S. commenced what the Pentagon dubbed Operation Epic Fury on Saturday, Papic confirmed his conviction in both recommendations. At the same time, he encouraged investors to open a new position in an ETF focused on tanker shipping BWET, in the expectation that freight rates will rise dramatically and for an extended period of time.
Why is this? Well, the Papic note goes into some detail about the key determinant for the duration of this war: Iranian drone capabilities. He describes the difficulty U.S. forces may encounter in degrading those capabilities because they are often operated by small, mobile units that can &#34;shoot and scoot for weeks, if not months, using Iran's rugged, mountainous coastline for cover.&#34;
This raises the possibility, then, of shipping activity in the Strait of Hormuz being disrupted for months. Given 2026 is a critically important election year, with the midterms in November, Paptic thinks Trump will be eager to declare victory quickly but that this might be easier said than done.
A word Papic focuses on to describe the range of outcomes stemming from this operation is &#34;broad&#34; - the operation has a &#34;broad&#34; mandate, incorporating regime change, the targets for Iran's retaliation are &#34;broad,&#34; and the targets for the U.S. and Israeli militaries are also &#34;broad.&#34;
-Jules Rimmer
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Marko Papic, chief strategist at BCA Research, suggests that the ongoing conflict in the Middle East will accelerate the market's shift away from U.S. tech stocks towards energy and industrial sectors. He emphasizes the importance of monitoring the dollar's performance, industrial metals like copper, and overall risk sentiment. Papic believes that portfolios should focus on industrials, materials, and energy stocks, while advising against further investments in tech. He also highlights potential disruptions in shipping due to Iranian drone capabilities, which could impact the duration of the conflict.

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Conflict in the Middle East won't stop market's rotation away from U.S. tech stocks but accelerate it, says BCA strategist