Israeli actions trigger global stock markets to enter "risk aversion mode", energy and defense sectors become safe havens for capital.

Notice, traders are preparing to face a volatile and risk-off week in global stock markets as the United States and Israel launched attacks on Iran. With expectations of a drop in aviation and other consumer sectors, market focus is shifting towards energy and defense companies, considered as potential safe havens. The weekend price movements in the Middle East markets signal the upcoming trend. The Saudi Arabia Tadawul All Share Index fell by 2.2%, with oil giant Aramco limiting the decline; while Egypt's main index declined by 2.5%. Piper Sandler & Co. Chief Investment Strategist Michael Kantrowitz stated, "The stock market may completely switch to a model driven primarily by oil prices. The stock market will continue to be under pressure until oil prices stop rising." This conflict serves as the latest catalyst for soaring oil and gas prices. Some estimate that when trading resumes on Sunday night, oil prices may surge by 10% to 15%. Strategists anticipate that intense military escalation will lead to a broad shift of funds towards defensive sectors such as utilities and healthcare, which tend to perform well during economic turmoil. Meanwhile, high-risk growth stocks and economically sensitive industrial and financial stocks may face selling pressure. BCA Research Chief Geopolitical and U.S. Political Strategist Matt Gertken pointed out that Monday will see "volatility and selling in tech and cyclical stocks because, based on the actions seen so far, rising energy prices are likely to harm economic growth. Defensive and energy stocks should outperform the broader market globally." As global stock investors assess the impact of the conflict, here are sector guides to watch after the opening of markets in Asia, Europe, and the U.S: Energy Sector As traders brace for the conflict, Brent crude oil climbed to its highest level since July on Friday, driving U.S. energy stocks to record highs. Major energy giants may further surge, including Exxon Mobil, Chevron, Shell, TotalEnergies, Repsol, BP, Woodside Energy Group in Australia, Petrochina listed in Hong Kong, and S-Oil in South Korea. Tortoise Capital Portfolio Manager Rob Thummel said, "The question is what impact Iran's reaction will have on global oil supply at least in the short term, perhaps even longer-term." He added that if the supply is not severely disrupted, any price spike could be temporary. In a scenario that Thummel considers less likely, a long-term closure of the Strait of Hormuz could push oil prices above $100 per barrel. Iran has stated no intention of closing this waterway, which accounts for around 20% of global oil flow, but signs indicate a halt in oil tanker traffic passing through this crucial point. Global turmoil boosting U.S. energy stocks Thummel believes performance of oil tanker companies will also be good. In contrast, high oil prices typically squeeze profit margins for refining companies like Marathon Petroleum and Valero Energy. Defense Sector Amid increasing global tensions, defense stocks have consistently risen over the past year, and the new conflict in the Middle East provides traders with another reason to pour into this sector. Investors may focus on major U.S. contractors like Lockheed Martin, Northrop Grumman, European companies Rheinmetall and BAE Systems, and Hanwha Systems in South Korea. MWB Research Analyst Jens-Peter Rieck stated, "Markets will generally view this as a positive for European defense stocks, although any trend may be more driven by sentiment rather than changes in profit expectations." President Trump has urged European and Asian allies to increase security spending and proposed an increase of about $500 billion in U.S. military spending. JFurry analyst Sela Kayaglu believes the desire to increase military funding may now spread to the Middle East. She said U.S. contractors will gain most of the new business from this region, as it already accounts for a large portion of their foreign military sales. Precious Metals Sector During periods of quelled geopolitical uncertainty, investors often turn to safe-haven assets such as gold, silver, driving up mining stocks. Precious metal prices (especially gold and silver) have risen significantly in the past year and began climbing in the weeks leading up to the Iran conflict. Stocks to watch include North American mining companies Agnico Eagle Mines, Barrick Gold, and Newmont, European companies Fresnillo and Hochschild Mining, and Hong Kong-listed Chifeng Jilong Gold Mining. Considering that the mining and energy sectors make up about 38% of the S&P/TSX Composite Index in Canada, this benchmark index may outperform other markets on Monday. Travel and Transportation Rising oil prices will increase fuel costs for airlines and squeeze profits, while the conflict will disrupt global travel. With the expected outbreak of conflict, U.S. airline stocks saw their largest drop since April on Friday. Airlines in the Persian Gulf region have extended flight cancellations, which may disrupt the intricate coordination of global flight operations. Investors will closely monitor stocks like American Airlines, Delta Air Lines, Lufthansa from Germany, Singapore Airlines, and Qantas from Australia. Eastern Horizon Wealth Management Chief Asia Strategist Francis Tan stated, "With the closure of Middle Eastern airspace and flights using that airspace en route to Europe possibly being cancelled, airline and travel stocks will be directly impacted." Traders brace for impact, airline stocks decline According to analyst Kayaglu, JFurry's forecast of a 5% change in fuel prices for 2026 will have a 5% to 10% impact on earnings per share for airlines like Delta Air Lines and United Airlines. For American Airlines, this impact reaches as high as 35% in either direction. However, she added that North American airlines have very little exposure to the Middle East routes directly, with Air Canada having the highest exposure at just 1.1% of its capacity. Hotel operators may also suffer from travel disruptions and reduced demand. InterContinental Hotels Group operates over 100 hotels in the region, with its stock price falling by 3% in London on Friday. Industry research analyst Lee Krascoe pointed out that the closure of Middle Eastern airspace also threatens the profit margins of freight carriers like FedEx, UPS, and DHL as longer transport times would increase fuel costs. On the other hand, disruptions in the Red Sea and Suez Canal could lead shipping companies like Maersk Line to raise service charges.