Morgan Stanley does not expect stocks to collapse on the Iranian crisis. What could change the forecast?

U.S. stocks will fall in price by a maximum of 5-7% due to the conflict between Israel and Iran, predicted Morgan Stanley. According to the bank, fundamental support for stocks remains, and investors are paying more attention to rising expectations for corporate earnings. The outlook may worsen if oil prices continue to rise, as Iran is one of the largest producers of raw materials, controlling access to an important trade artery - the Strait of Hormuz.

The U.S. stock market is likely to experience only a mild correction due to the conflict between Iran and Israel, Morgan Stanley Chief Investment Officer and Global Investment Committee Chairman Mike Wilson told CNBC. Wilson said equity market fundamentals are strong enough for the market to withstand the current level of geopolitical risk. 

«Right now it looks like an event that will lead to a correction of about 5-7%, but we need to remain vigilant,» Wilson said.

The situation on the oil market can seriously change the forecast, writes CNBC. Energy is at the center of attention in this conflict, as Iran is the ninth largest oil producer in the world and controls the Strait of Hormuz - a key shipping route from the Persian Gulf, the channel noted.

«I think if oil had risen to $90 a barrel or gone above $90, we'd have a real problem, but that's not the case right now,» Wilson noted.

The conflict is likely to be sidelined in the minds of investors amid improving corporate earnings forecasts, says Morgan Stanley's investment director.

«We're not optimistic because we're hoping for some conflict. We're optimistic because the earnings data has come out and they're up significantly since mid-April,» Wilson said.

The cost of oil rose sharply and U.S. and European stock indices fell after Israel's attack and Iran's response on Friday, June 13, but the situation then softened. Stock and energy markets «brushed off» concerns about escalation in the Middle East, said analysts. The main U.S. index, the S&P 500, was down only 1 percent relative to levels before Israel's first strikes on Iran. On Tuesday, June 17, oil newly rose in price due to U.S. President Donald Trump's threats against Iran, but remained still below Friday's peaks.

Wilson's comments came shortly after Trump threatened Iran's leader on his social media accounts, calling for the Islamic Republic's «unconditional surrender,» CNBC writes. According to NBC News' sources report, Trump met with key national security advisers on June 17 to discuss the conflict. Trump is considering various options in the case of Iran, including a possible U.S. strike on the country, the sources told NBC News.

Wilson isn't the only one on Wall Street who has so far downplayed the potential impact of Middle East attacks on the market: other analysts have also pointed to a history of stocks rebounding quickly after geopolitical events, CNBC noted.