The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Jon Sindreu

LONDON, March 5 (Reuters Breakingviews) - Financial markets have swung from fear to hope, pricing in the inflationary impact of the war in the Middle East but also seeming oddly blasé about how long the disruption will last. Tellingly, in both bouts of optimism and pessimism this week, the winning trades of the past year appear to have run their course.

At first glance, financial markets seem to be painting a coherent picture since Donald Trump began his Iran war. Brent hovered around $83 a barrel on Thursday — up 21% on the month but far from the $100 plus levels expected under a prolonged closure of the Strait of Hormuz. The implication is that blocking this vital trade artery for more than a few weeks would be so devastating that the countries involved won’t allow it.

Other markets reflect a similar view that the war will push up inflation a bit but not be catastrophic. Equity indexes are slightly lower, energy stocks are higher, and the U.S. dollar has risen 1.3% since the attack on Iran thanks to America’s status as a net oil exporter. The S&P 500 has held up better than European and emerging market indexes, which rely more on imported energy. Government bonds have edged down on the assumption that central banks will turn a little more hawkish.

But many other current trends make little sense. Gold, a traditional inflation hedge, is down about 3% since the attacks. Consumer staples shares, think food and cleaning products, have been beaten by consumer discretionary ones — apparel, travel and cars — despite being less sensitive to household spending. “Growth” stocks, normally hurt most by rising rates, have beaten cheaper “value” names, like Universal Health Services. This includes software firms such as Adobe ADBE.O, which had been battered by AI fears and had no obvious reason to do well. These movements are mostly the opposite of what happened in 2022 after a similar energy shock: Russia’s invasion of Ukraine.

What ties this together is simple: assets that had been outperforming are now lagging, and vice versa. The year’s winning trades before the war were extensions of strategies that surged after Donald Trump’s tariff package last year. Many had become overstretched. So-called dedollarisation wagers were so popular that net short bets on the greenback using derivatives hit a five-year high of $22.8 billion in February, according to the Commodity Futures Trading Commission. Gold seemed to have become an unbeatable all weather asset, which is unsustainable. Fund flows into U.S. staples were at record highs.

Some of those underlying trends could theoretically continue: central banks may keep buying gold, and global investors look for alternatives to the dollar. But it is telling that, even as markets rebounded Wednesday, the old winning wagers kept underperforming – staples, for instance, fell another 0.5%. Every investment playbook eventually tires, and this crisis has revealed how worn out some pages already were.

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CONTEXT NEWS

Financial markets have been rattled by the war that has spread across the Middle East following the U.S.-Israeli attack on Iran. As of 1000 GMT on March 5, Brent oil prices traded at $83 a barrel.

However, equities rebounded on March 4, on the back of a news report suggesting that Iran may be seeking a diplomatic solution, as well as President Donald Trump’s assurances to intervene to steady crude markets.

(Editing by Neil Unmack; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on SINDREU/Jon.Sindreu@thomsonreuters.com))