From the threat of "destroying civilization" to a ceasefire for two weeks, the situation in the Middle East is unpredictable! Wall Street urgently prepares a "war trading guide".

Due to concerns among investors about the uncertainty of the ceasefire prospects, some large Wall Street investment banks are drawing up a series of trading strategies related to the conflict with Iran. On Tuesday afternoon, the US stock market rebounded, with traders analyzing various conflicting information about the direction of the war. The day before, the Prime Minister of Pakistan called on US President Trump to extend the deadline for Iran by two weeks, while urging Iran to agree to Trump's request to open the Strait of Hormuz. On Wednesday morning, US President Trump agreed to a two-week ceasefire, with reports later stating that both Tehran and Israel had accepted the ceasefire agreement. Wall Street trading departments serving global institutional investors are preparing for vastly different outcomes: if tensions ease, there may be a rebound due to limited market positions; if Trump threatens to destroy Iran without reaching an agreement, there may be substantial selling. Here's how the trading departments of the four major investment banks are preparing for the war scenario: Goldman Sachs Group, Inc. Tony Pasquariello, partner and global head of Hedge Fund Services at Goldman Sachs Group, Inc., said traders are preparing for multiple scenarios rather than a single base case. "Now, I think you have to ask how the market would react to headlines about 'mission accomplished,' how the market would react to headlines about '45-day ceasefire,' and how the market would react to headlines about 'ground troops entering,'" Pasquariello wrote in a report to clients on Monday. Pasquariello said traders do not have true insight into which war outcome is most likely to occur. "While I have some intuition about these issues, I certainly dont have any edge," he wrote, adding that it's difficult to argue that adopting an aggressive tactical position is rational. Instead, he urged investors to be cautious, advising them to focus on high-liquidity securities and reduce overall exposure. Given the "volatility" in momentum trading, he said, "I advise reducing your overall equity exposure." He also suggested that those looking to go long consider option strategies, such as call spread strategies. J.P. Morgan J.P. Morgan's trading department is simulating three scenarios - bullish, bearish, and status quo - each with drastically different impacts on the market. If tensions ease or policies shift, J.P. Morgan's traders expect a comprehensive "across-the-board rally," including stock market gains, bond yield declines, oil price drops, credit spreads tightening, and a weaker dollar. Small-cap stocks will lead the way, with tech stocks and the overall market following closely. Cyclical sectors - particularly industries like home builders and retailers in non-essential consumer goods - will outperform the broader market, while the financial sector may benefit from an improved macroeconomic environment and steepening yield curve. Precious metals and mining stocks may rise with a weaker dollar, while energy stocks may lag. The bank stated that emerging markets will outperform developed markets, with Asia-Pacific and Latin America leading the trend. If negotiations fail and military conflict escalates, including further disruptions to key energy transport routes, oil prices will soar. J.P. Morgan expects WTI crude oil prices to possibly surpass $125 per barrel and potentially approach $150. Such shocks could push up yields due to inflation risks, strengthen the dollar, widen credit spreads, and put general pressure on the stock market. In this scenario, J.P. Morgan's traders wrote, "In the stock market, all energy-related stocks need to be bought." They also added that prolonged conflict will boost renewable energy, defense companies, and parts of the industrial supply chain. Most other industries will face pressure, particularly airlines. The bank warned that a "sell everything" approach may create indiscriminate outcomes, even if some companies show stronger resilience to economic recession. Maintaining the status quo means limited easing of tensions, which may temporarily stabilize the market but will leave behind structural constraints like reduced shipping volumes and ongoing economic damages. J.P. Morgan's global markets intelligence chief Andrew Tyler wrote, "If Trump abandons the threat of strikes on Iranian infrastructure, ostensibly to prevent Iranian attacks on Saudi oil production while also preventing Houthi forces from blocking the Red Sea passage, this will be a short-lived victory." Citigroup Citigroup's trading department believes that reaching a potential agreement with Iran will be a positive catalyst for US commodity stocks and the South Korean stock market. "These sectors have generally been negatively affected by falling oil prices and have lagged performance, so we've been looking for areas that align with our expectations thematically," said Stuart Kaiser, head of US stock trading strategies at Citigroup. In the event of a temporary ceasefire, Kaiser prefers to hold long-term high-growth momentum stocks, including companies like Ciena, Western Digital Corporation, Seagate Technology Holdings PLC, AMD, Alphabet, Micron Technology, Inc., and Rocket Lab. If tensions escalate, the bank recommends going long on aerospace and defense, energy, and food and daily consumer goods retailers, while shorting durable consumer goods and household items. Globally, Citigroup sees downside risks for European and Japanese stock markets due to their higher dependence on energy inputs and transportation costs. Barclays PLC Sponsored ADR The trading department of Barclays PLC Sponsored ADR believes that the market should pay less attention to specific outcomes and focus more on whether there is a credible path to easing tensions. "The market should consider whether there is a viable exit here," wrote Alexander Altmann, global equity tactical strategist at Barclays, adding that if negotiations continue, recent deadlines may not be as important. Altmann noted that overall investor positions are light, with volatility control funds reducing their allocation to US stocks to 56% - the lowest level since July of last year - and hedge funds' long/short ratios nearing their lowest level in a year. "This could leave the stock market off-balance, especially if something like this happens one or two days after the deadline tonight," he wrote.