Investing.com - A possible U.S. military escalation with Iran is worth investors’ attentions despite more immediate concerns over President Donald Trump’s tariff plans, according to analysts at Wolfe Research.
Earlier this month, media reports suggested that Trump sent a letter to Tehran urging it to reach a new nuclear deal.
According to Axios, Trump’s letter to Iran’s Supreme Leader Ali Khamenei included a two-month deadline to forge an agreement. Should Iran reject the outreach, the chances of an increase in either U.S. or Israeli military action against Iranian nuclear facilities could rise dramatically, Axios added.
On Thursday, an advisor to Khamenei said that Tehran had not closed off all potential doors to a resolution with the Trump administration and is prepared for indirect negotiations. Kamal Kharrazi said Iran is ready to "state its own conditions and make the appropriate decision," Reuters reported, citing the semi-official Iranian Students News Agency.
Iranian Foreign Minister Abbas Araqchi has previously suggested that talks with Washington were impossible until the White House changes its stance of "maximum pressure."
Western powers have accused Iran of seeking nuclear weapons, saying Tehran is enriching uranium up to 60% purity -- a level they say would be above civilian usage.
In 2018, Trump pulled out of an Obama-era deal with Iran that limited its nuclear program in exchange for sanctions relief. Trump reinstated sanctions on Tehran, and Iran has reportedly since breached and surpassed prior limits on its nuclear activities.
In a note to clients, the Wolfe Research analysts led by Myles Walton flagged that U.S. military movements in the wake of Trump’s letter are "worth keeping an eye on." Last week, Secretary of Defense Pete Hegseth extended the tour of the aircraft carrier USS Harry S. Truman in the Middle East, while the supercarrier USS Carl Vinson is due to be in the region in the coming weeks.
Significant movements of B-2 stealth bombers to the Indian Ocean island of Diego Garcia -- a possible staging point for strikes in the Middle East -- have also been reported in the last few days.
The actions appear to be sending a "clear message" to Iran to control the Houthi group in Yemen, which has attacked shipping lanes in the Red Sea region, the analysts said.
"We don’t know where this goes from here, but we also think it hasn’t received as much attention because there is so much else going on with tariffs," they added.
In the three months after so-called "kinetic military events" in the past, such as Trump’s decision in 2020 to call for a drone strike to kill Iranian major general Qassem Soleimani, U.S. defense stocks outperformed the S&P 500 index by an average of 9%, the Wolfe Research analysts said.
"However, the scope of any military operation this go around could be more significant with the stated interest of the Trump administration to destroy Iran’s nuclear weapons program," they wrote.
(Reuters contributed reporting.)