Bank of America Merrill Lynch says the market may underestimate the impact of the Middle East war, and global economic risks may intensify.

Antonio Gabriel, global economist at Bank of America Securities, said that investors may be underestimating the potential impact of the US-Iran war on the global economy. Despite the market's belief that the impact of the conflict is temporary, Gabriel pointed out that there is still significant uncertainty regarding the duration of the war and its scope. Gabriel stated in a report released on Monday that while the possibility of a quick end to the conflict still exists, the likelihood of the war extending into the second quarter should not be ignored, and even a longer-term conflict cannot be ruled out. "The market seems to be treating this event as a short-term shock, but we believe that investors may be underestimating its potential risks." Currently, investor sentiment remains relatively calm. Gabriel noted that the S&P 500 index has only dropped by about 4% from its historical highs, indicating that market concerns about the war have not escalated significantly. Meanwhile, as inflation concerns rise, traders have begun to lower their expectations for the extent of Fed rate cuts this year. After oil prices fell on Monday, some investors entered the market again at lower levels, pushing the S&P 500 index up by about 1%. Gabriel believes that the market is currently more focused on the impact of the war on inflation, while underestimating the potential more severe impacts on global economic growth. "In our view, the market is primarily focused on inflation issues and not pricing in the more destructive scenarios that global economic growth may face." With the uncertain trajectory of the war, major Wall Street institutions are evaluating the potential impact of the conflict on the stock market. Currently, strategists at Goldman Sachs and Morgan Stanley remain relatively optimistic about US stocks, believing that the decline in valuations and continued corporate profit growth will provide support to the stock market. However, Stephen Parker, Co-Head of Global Investment Strategy at J.P. Morgan Private Bank, believes that there is a degree of complacency in the market regarding the risks of the war. Meanwhile, Helima Croft, Global Head of Commodity Strategy at Royal Bank of Canada Capital Markets, has raised her forecasts for the duration of the conflict and its impact on oil prices. She stated that the expansion of US military targets and Iran's asymmetric combat capabilities could prolong the conflict into the spring. Croft warned that if the war continues in the next three to four weeks and maritime shipping safety does not significantly improve, international oil prices could exceed the peak of $128 per barrel during the Russia-Ukraine conflict in 2022. If the conflict lasts for several months, oil prices could even surpass the historical high of $146 per barrel set in 2008. On Monday morning, as hopes for the resumption of shipping in the Strait of Hormuz increased, oil prices fell. West Texas Intermediate crude oil dropped by 3.6% to $95.14 per barrel, while the S&P 500 index rose by 1.1%. However, due to the ongoing war, commercial shipping in the Strait of Hormuz is still suspended, and the recovery of this critical global energy transport channel remains a focus for the market.