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Peter Atwater, the economist behind the idea of a K-shaped recovery, is advising caution: he believes stock markets are not fully accounting for fallout from the Iran war — including reputational risks to US firms and a fresh wave of global inflation. That gap, he says, could matter for portfolios and everyday consumers alike.
Atwater, president of Financial Insyghts, told Bloomberg this week he has stepped back from buying US equities because investors appear to be discounting a scenario in which American companies face economic and political backlash abroad as the conflict raises living costs worldwide.
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Investor signals and recent market behavior
Since fighting intensified, equity markets have swung between sharp drops and quick rebounds. During the sell-off, the Dow and the Nasdaq 100 fell as much as 10% from recent highs, while the S&P 500 flirted with an official correction. Despite that volatility, major indexes remain not far from record levels — a gap that, for Atwater, suggests complacency.
Some traders grew briefly more optimistic after President Trump posted that Iran had requested a cease-fire, sending stocks higher. But Atwater argues that short-term reversals may obscure longer, less visible risks that are not yet reflected in prices.
Why Atwater thinks the risk is underpriced
His concern is twofold. First, the conflict is pushing up energy and commodity prices, and those cost increases are spreading through global supply chains. Second, he warns of rising international resentment: as goods and services become more expensive, foreign consumers and governments could single out US policy and companies for blame.
That combination — higher prices plus potential political backlash — could hit American multinationals in ways that financial models haven’t fully captured, Atwater says.
- Market exposure: US-listed firms with significant overseas operations could face sales declines or regulatory/headline risks not priced in today.
- Consumer impact: Rising oil and commodity costs can erode household budgets, with the heaviest burden falling on lower-income households.
- Geopolitical spillovers: Threats against US businesses operating in the region raise both reputational and operational risks.
There are signs the international view of the United States has softened. A Pew Research Center study found declining ratings of the US across several countries in the year before spring 2025, an erosion that could make companies more vulnerable to public and policy backlash.
At the same time, Iran’s Revolutionary Guard has publicly suggested US tech firms with regional operations could be considered targets for retaliation — a development that adds a direct security dimension to Atwater’s economic concerns.
Wider economic channels: oil, food and fertilizer
Beyond crude, trade disruptions around the Strait of Hormuz have tightened supplies of other inputs, including fertilizer, pushing food prices higher in some markets. Atwater highlights that rising food costs are a particular threat to the least well-off, and he warns that growing hardship could have political consequences in vulnerable countries.
The link between commodity shocks and social unrest is not theoretical: past spikes in essential goods have contributed to instability. Atwater says he is watching whether mounting economic stress could produce broader political ripple effects across the Middle East and beyond.
For investors and readers, the takeaway is practical: simple index-level readings may understate second-order risks — reputational, regulatory and geopolitical — that can dent revenues and margins for globally exposed companies.
What to watch next
The story will hinge on several moving parts: oil and commodity prices, developments around shipping lanes like the Strait of Hormuz, statements and actions by regional actors, and whether foreign consumers or governments begin responding to US policy through boycotts, tariffs or restrictions. Outflows or reduced appetite from foreign investors would also be a key signal that markets are repricing the risk.
Atwater’s stance is a reminder that not all market risks are encoded in earnings models or in near-term macro forecasts. If his view proves correct, the price impact could be gradual but persistent — affecting companies’ international revenues and, eventually, corporate valuations.
Sources: Bloomberg reporting; Pew Research Center findings; public statements from analysts and regional actors.
