US equities (^GSPC, ^DJI, ^IXIC) are sliding in Monday's trading session as markets are in wait-and-see on potential escalations in Middle Eastern conflicts. Conversations across Wall Street have begun to spring up about what the potential fallout could look like from Iran's strikes on Israel.

Freedom Capital Markets Global Strategist Jay Woods and Bullseye American Ingenuity Fund Portfolio Manager Adam Johnson join Market Domination to discuss the rising tensions in the Middle East, the potential fallout, and what investors need to keep in mind moving forward.

Johnson states what he tells his clients for times like these: "This is not what drives markets... It almost sounds callous for me to just make that my volley right off the bat. But if you go back and look at the 20 or 25 different events, geopolitical events, that involved hostilities — Gulf War one, Gulf War two, the bombing of the USS Cole, the World Trade Center, on and on — you look at these events and typically what has happened, is that you get a 7% or 8% selloff in the first five days. There's a bottoming, and then ten days later the markets are exactly where they were."

Woods speaks on the pullback seen in in the markets: "I think we could drop a little further, but I think it's a buyable dip. We've seen strong earnings. The financials came out with great earnings. JPMorgan (JPM) earnings were nothing to sneeze at. I know Jamie Dimon is [typically] little skittish with his outlook, geopolitical headwinds. Goldman Sachs (GS) knocked it out of the part... We've come so far so fast, I don't see that next catalyst outside of individual pockets of earnings to take the market higher and now with the rising yields again going towards 5%, I don't think we get there..."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video Transcript

JOSH LIPTON: Israeli officials are weighing a response to Iran's attack over the weekend fueling fears of a widening Middle East conflict. We're looking at how to navigate the big picture with the Yahoo Finance playbook. We're joined now by Jay Woods, Freedom Capital Markets Chief Global Strategist, and Adam Johnson, Portfolio Manager of the Bullseye Brief American Ingenuity Fund. Guys, great to both have you on the show.

Adam, I'll start with you. So obviously, listen, geopolitics front and center.

ADAM JOHNSON: Yeah.

JOSH LIPTON: Iran-Iraq-- I'm sorry, Iran-Israel, China-Taiwan, Russia-Ukraine--

ADAM JOHNSON: Take your pick.

JOSH LIPTON: When you're talking to clients, and they're asking you how to navigate all this, what are you telling them?

ADAM JOHNSON: Eye on the ball, play through the pain. This is not what drives markets. And I'll tell you why I say that. It almost sounds callous for me to just make that my volley right off the bat. But if you go back and look at the 20 or 25 different events, geopolitical events, that involved hostilities-- Gulf War I, Gulf War II, the US-- the bombing of the USS Cole, the World Trade Center, on and on.

You look at all these events. And typically, what has happened is you get a 7% or 8% sell-off in the first five days. There's a bottoming. And then 10 days later, the markets are exactly where they were. So it's an emotional response, which is an understandable response, because it's upsetting to see these images. And yet we get through it. And that's why I say it sounds callous of me to say play through the pain. But honestly, that's what history has taught us. You play through the pain.

If you're picking high-quality companies and focused on earnings and, by the way, not interest rates, because we're so sick and tired of that whole debate, then that's ultimately what matters. And that's what will win the day, it's time in the market, not timing the market.

JULIE HYMAN: Yeah. I mean, this is something, listen, all of us around the table have been watching markets for a long time, even Russia-Ukraine, which is a conflict that is still happening. And you still do get, like today, there are new sanctions related to the metals. You've got some action in the metals.

But in terms of equities, how do you-- do you view this similarly to how Adam is looking at?

JAY WOODS: Well, I think you look at the events, and you're going to see reactions to them. That's what we're seeing now. We saw it on Friday and anticipation of exactly what was going to happen. But something's different this time. And we've had 5%, 1% corrections intraday in the S&P 500 this year. Nothing crazy.

Each time until today, we've rallied back. Today was different. We got that morning rally, and now it's reversing. A lot of it has to do with retail sales. Inflationary numbers keep acting that hot CPI number. It has us on our toes and interest rates, the 10-year, that's what drove the bus last year. And then when we were at 3.75, where was the S&P 500? It was under 4,500. We've rallied in tandem. Now we're starting to see that separation.

I went back and looked the 10-year when it went above 4.6 for the first time last October, November, the S&P corrected 10% during that time. So now we're seeing what I think is a normal correction. And we have this backdrop to give it more of a narrative.

JULIE HYMAN: And just quickly then, do you buy into that correction then? Or do you say-- do you sort of wait until stocks maybe drop further?

JAY WOODS: I think we could drop a little further, but I think this is a buyable dip. We've seen strong earnings. The financials came out with great earnings. JP Morgan earnings were nothing to sneeze at. I know Jamie Dimon, he's typical little skittish with his outlook, geopolitical headwinds, yes. Goldman Sachs knocked it out of the park. Citi, Wells Fargo did well.

But we've come so far, so fast. I don't see that next catalyst outside of individual pockets of earnings to take the market higher. And now with the rising yields again going towards 5%, I don't think we get there. You know, that broadening rally in the small caps utilities, that story is over for now. And yeah, I think we pull back, but I think this pullback should be bought.

JOSH LIPTON: And Jay brings up the 10-year. You are back at 4.6.

ADAM JOHNSON: Yeah.

JOSH LIPTON: You think we-- so climbing closer to that October high, 5%. Do you think we test 5%?

ADAM JOHNSON: I sure hope not.

JOSH LIPTON: So what does that mean for the market?

ADAM JOHNSON: Yeah. I hope we don't test that 5%. But markets are wrestling with the fact that we may not get as many rate cuts as well. Let's rephrase that. We won't get as many rate cuts as we thought.

A few months ago, the assumption was we'd have three by June and three more by December. And now it's basically one and one. And I think one and one is reasonable inflation went up to 9.1% consumer price index, that measure of inflation went up to 9.1, PPI went to 11.2. And now PPI is 2.2. The PCE, Personal Consumption Expenditure, is what the Fed looks at, is it 2.5. GDP price index is down at 1.6.

And actually, it's really only the CPI that's still above 3. And if you average all four of those together, which I know is a true blue economist would tell me that's not fair. But it's my back of the envelope, if you average all four together, you get to 2.4%. The Fed's target is 2.

So I think we're getting to the point where inflation is starting or will start to become a rear view mirror indicator. We're not there yet. The market's wrestling with that. I think earnings matter more. And as this earnings season begins, that's where my focus is. Admittedly, it's not on what's happening in Israel. And it's honestly not even what's happening at the Federal Reserve. It's what's happening in corporate America.