By Colin Laidley

Wall Street is no stranger to uncertainty and volatility. But the three-week-old war in Iran is testing the nerve of even the most experienced investors.

Stock trading has been choppy since the war began late last month. The S&P 500 entered this week down more than 5% in March, then surged on Monday after President Donald Trump said the U.S. and Iran engaged in “productive conversations” over the weekend, stoking hopes for a resolution to the conflict that’s caused oil prices to skyrocket. Iranian officials denied taking part in negotiations, and Tuesday's action was more restrained.

Experts on Tuesday warned against putting too much stock in yesterday's rebound, with Alli McCartney, managing director of wealth management at UBS, suggesting that it "could be a false positive."

“We’re in this market where gold is down, bonds are down, stocks are down—that is not the time to react and trade into things,” McCartney told CNBC on Tuesday. “This is really the time to be very disciplined and very discreet."

Several strategists say the situation on Wall Street could get worse before it gets better. Dave Mazza, CEO of Roundhill Investments, told CNBC Tuesday that while investors have been hedging amid the conflict, they hadn’t given into the urge to indiscriminately sell. McCartney said many institutional investors have “derisked" their portfolios and are, for now, "staying that way."

“We’re not necessarily seeing full oversold conditions where people would then be comfortable jumping back in,” said Mazza.

“I feel that the S&P needs at least a correction,” said Mark Matthews, managing director at Julius Baer, was eyeing the possibility of a correction for the S&P 500, generally considered a drop of 10% from a recent high. As of Tuesday, the benchmark index was nearly 6% off its late-January record, putting it more than halfway there. (Follow our live markets coverage here.)

Matthews’ bearish bent is partly due to the concentration of tech stocks in the S&P 500. Eight of the capitalization-weighted index’s 10 largest components are tech companies, including the hyperscalers that are spending huge sums on artificial intelligence infrastructure. The intensity of those investments, Matthews said, will restrict the companies ability to buy back stock and increase dividends, one of the reasons he suggests investors look outside the U.S. 

“China is the equity market—and I would definitely include Hong Kong in that—that we see the best potential for,” said Matthews.

Roundhill's Mazza suggests investors focus on either the very short term or the long term. There will be "a lot of opportunities" for savvy traders to take advantage of sharp intraday moves, said Mazza, but those who aren't comfortable attempting to do so have other options. "You need to lengthen your time horizon, and actually think simply about the longer-term structural winners," he said.

READ: Oil Prices Plummet as Trump Touts 'Productive Conversations' With Iran

Bank of America analysts on Monday made the case for small-caps, which they argued are poised to outperform large-caps amid heightened geopolitical volatility. And Citi analysts said investors concerned about resurgent oil prices could consider energy and agricultural commodities.

Source: Investopedia