Goldman Sachs' Solomon Calls the Iran Reaction ‘Benign’ The ETF Data Says Something Different

Gen. Dan Caine said operations will "expand inland, striking progressively deeper into Iranian territory." Six American service members have been killed. 

The Operation Epic Fury is now in its fifth day with no end date given.

On February 28, the US and Israel launched coordinated strikes on Iran in what the Trump administration called a "preemptive defensive measure." 

By Sunday, Iran confirmed Supreme Leader Ali Khamenei was killed. Nine Iranian navy ships were reportedly sunk. Multiple nuclear sites were struck. It is the most significant US military engagement in the Middle East in over two decades.

Iran hit back. Missiles struck US military bases across the region. The Strait of Hormuz, through which roughly 31% of global seaborne crude exports flow daily, was threatened. Iran's Revolutionary Guard briefly declared it closed before US naval pressure partially reopened it.

Hegseth's tone was clear today.

That is not the language of a conflict wrapping up in days.

Here's what was surprising. Markets didn't panic. Not fully, anyway.

Goldman Sachs CEO David Solomon called the market reaction "more benign than you might think." And he's right. 

The Dow was down only 400 points on Tuesday, after sliding 1,200 intraday. 

The S&P 500 has barely moved year-to-date. Technology stocks, not energy or defense, remain the dominant market narrative according to several Wall Street strategists.

But underneath that calm surface, a very clear rotation is happening. The money is moving. And it's moving fast into three categories: defense, energy, and gold.

That's the historical base case. The S&P 500 lost an average of just 0.9% in the first month after a major geopolitical event, then gained 3.4% over the following six months. Forty events, 85 years of data. 

But this conflict has one feature that differentiates it from most of that history: the Strait of Hormuz.

Every day, roughly 14 million barrels of crude pass through a narrow waterway bordered by Iran on one side. Regional pipelines can reroute maybe 5 to 7 million barrels per day if shipments stop. That leaves around 8 million barrels stranded daily in a worst-case closure scenario.

Barclays analysts flagged Brent hitting $100 as a realistic scenario. UBS went further, putting $120 in play if the situation deteriorates materially. Goldman Sachs' oil research team built a pricing model suggesting current Brent price reflects markets pricing in roughly a four-week disruption. Their no-disruption fair value is $65. That 28% gap is the war premium baked in right now.

As of Wednesday, Brent is at $81.08. WTI is nearly at $75. 

Trump has said he expects oil prices to eventually come down after the conflict. But that "eventually" is doing a lot of work in that sentence.

ITA (iShares US Aerospace & Defense) is up +6.2% since the strikes began. SHLD (Global X Defense Tech) leads the group at +7.1% for the week, and has returned over 72% in the past 11 months alone. PPA is up 14.4% year-to-date, outpacing the S&P 500 by a wide margin.

This isn't just a conflict trade. In January 2026, the White House proposed a $1.5 trillion military budget for FY2027, a 50% increase over the prior request. NATO members agreed in June 2025 to raise defense spending targets from 2% to 5% of GDP. The defense sector was already in a structural upcycle before a single bomb was dropped on Iran. The conflict just made that case louder.

Key holdings driving these ETFs right now: Lockheed Martin is up 3.5% with a $194 billion order backlog. RTX is critical for missile defense systems. Northrop Grumman gained 4.1% on the week. These are not speculative positions. They're durable revenue machines with government contracts locked in for years.

XLE (Energy Select Sector SPDR) has returned 25% in just the first two months of 2026. USO, which tracks WTI crude futures, is trading at $90.20 as of March 4, near its 52-week high of $94.37.

This is where the risk-reward gets complicated. Energy ETFs benefit from higher oil prices, but if the conflict ends quickly, that premium evaporates fast. When the prior US-Israel strike on Iranian nuclear sites occurred in June 2025, oil spiked then fell sharply once a ceasefire was announced. The same playbook could repeat.

If you hold XLE or XOP, you are effectively betting on the conflict lasting longer than four weeks. That may be exactly right given Hegseth's language Wednesday, but it is a bet, not a certainty.

Gold is above $5,300 per ounce for the first time in history. It's up 24% year-to-date, compared to the S&P 500's roughly flat performance. GLD and IAU have recorded their largest net inflows in 18 months.

JP Morgan has raised its year-end gold target to $6,300 per ounce. Silver crossed $90 for the first time, adding a speculative dimension to the metals trade. Central banks are continuing to diversify reserves into gold, which is a structural tailwind completely separate from Iran.

The gold ETF case is arguably the clearest trade here. It benefits from geopolitical risk, real yield compression, and dollar uncertainty simultaneously.

Wells Fargo strategists put the base case S&P 500 target at 7,500 by year-end, even with the conflict factored in. 

Their worst case is 6,000. Both scenarios assume the Strait does not close for a prolonged period. 

That's the single variable that changes everything.

Defense ETFs (ITA, SHLD, PPA, XAR) are the cleanest structural trade. Budget tailwinds, rising order books, and conflict-driven demand are all aligned regardless of how long the war lasts.

Energy ETFs (XLE, USO, XOP) carry duration risk. They work if the conflict stays hot. But they can reverse sharply on any ceasefire signal. Position accordingly.

Gold ETFs (GLD, IAU) benefit from multiple converging forces: geopolitical risk, central bank buying, real yield compression. JP Morgan's $6,300 target by year-end is not unreasonable.

The Strait of Hormuz is the single most important variable to monitor. Any credible disruption of that waterway changes the scenario matrix dramatically.

Broad market (SPY, QQQ) has shown surprising resilience. History says geopolitical shocks are typically short-term noise. But this conflict has structural features that could override the historical pattern.

Bottom Line

This is not the time to chase momentum blindly, and it's not the time to panic out of well-positioned holdings either. 

The investors who will do best here are the ones who stay analytical, hold a clear thesis on duration, and use the volatility as structure rather than noise.

We will continue to monitor Pentagon briefings, oil flow data, and ETF inflow signals daily. 

Stay focused. Stay calm.

Subscribe to ETF Alert for real-time market news. 

We track the trends that move billions, before they hit mainstream headlines.

[Subscribe to ETF Alert]

Disclaimer: This is not financial or investment advice. Do your own research and consult a qualified financial advisor before investing.