Investors are terrible at assessing geopolitical risks, let alone the prospects of war. But the market reaction to Iran's attack on Israel tells us something about their current state: Investors may be putting superhigh valuations on stocks, but they're still capable of making reasoned judgments. Even better, investors aren't on a hair-trigger to dump their portfolios, so this adds to evidence that we're probably not in a bubble, at least not yet.

Before getting to the lessons, the logic. Stocks and bond yields fell and oil and gold rose during the day on Friday as investors worried about Iran's move in the cycle of revenge with Israel. They reversed their moves late in the day and on Monday-with the 10-year Treasury yield on Monday morning back to where it began on Friday morning-as it became clear that Iran didn't want to escalate. Markets might be wrong to conclude that a wider Middle East war isn't about to break out. But the price moves had strong internal logic.

Wall Street Is Betting OPEC+ Can Fend Off $100 Oil

The specter of a widening war in the Middle East has put $100-a-barrel oil back on the table. But Wall Street is looking elsewhere in the region for hints about how high prices could go.

The Saudi-led Organization of the Petroleum Exporting Countries and its Russia-aligned counterparts have dialed back production of millions of barrels of oil a day in recent years. Investors are betting that spare capacity, which the countries could yet tap in to, will effectively put a cap on oil prices-and protect Americans from an inflationary shock.

Supreme Court Takes Up Jan. 6 Case That Could Affect Hundreds of Prosecutions

WASHINGTON-After attending the "Stop the Steal" rally near the White House on Jan. 6, 2021, small-town police officer Joseph Fischer and a friend began driving home to central Pennsylvania. They turned around and went back to Washington after learning their fellow supporters of then-President Donald Trump were occupying the Capitol.

Joining the chaos, Fischer ultimately spent about four minutes inside the building and netted himself seven criminal charges, including a felony count of obstructing an official proceeding.

Israel-Iran Confrontation Forces Gulf Powers to Choose Sides

DUBAI-Saudi Arabia and other oil-rich Persian Gulf states have tried to avoid taking a position on America's geopolitical rivalries in recent years, staying neutral in the Ukraine war and building ties with China. With Israel and Iran in open conflict, they might be forced to choose a side.

Saudi Arabia and the United Arab Emirates struggled to stay on the sidelines when it became clear last week that Iran would attack Israel in retaliation for a strike in Syria that killed senior Iranian military officers.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

04-16-24 0600ET