Morgan Stanley's Wilson sees Israel-Iran causing only 5%-7% stock pullback, unless oil moves this high

The U.S. stock market will likely see only a minor pullback as a consequence of the conflict between Iran and Israel, but the a potential hit to oil supplies is still a risk, according to Morgan Stanley's Mike Wilson. The firm's chief investment officer and chair of the global investment committee said Tuesday on CNBC's " Power Lunch " that the fundamental backdrop for stocks is strong enough for the market to withstand the current level of geopolitical risk. "Right now, it feels like this is a 5 to 7% correction type of an event, for now, but we've got to stay vigilant," Wilson said. The S & P 500 is down 1% from where it closed last Thursday, before Israel's first strike on Iran. One variable that could change this setup is oil prices. Energy is in the spotlight in this conflict due to Iran's status as the world's ninth largest oil producer and its proximity to the Strait of Hormuz, a key shipping lane in and out of the Persian Gulf. Oil prices rose sharply on Tuesday, but the front-month futures for West Texas Intermediate crude were still trading just under $75 per barrel as of 4 p.m. ET, below the peak price on Friday. "I think if oil were to spike to $90, or something north of $90, we'd have a real problem, but that's not the case at the moment," Wilson said. @CL.1 5D mountain Oil futures were trading below their peak Friday levels despite Tuesday's spike. Wilson's comments came shortly after President Donald Trump threatened Iran's leader in a social media post, calling for the Islamic Republic's " unconditional surrender. " Trump met with top national security officials on Tuesday to discuss the conflict, two White House officials told NBC News . Wilson said that the conflict would likely be overshadowed in the minds of investors by an improving outlook for corporate earnings. "We're not bullish because we're hoping for some conflict here. We're bullish because earnings revisions have turned up, and they've turned up meaningfully since the middle of April," Wilson said. Wilson is not alone in downplaying the potential market impact of the attacks in the Middle East. Other Wall Street commentators have pointed out that there is a history of quick rebounds for stocks following geopolitical events. To be sure, Wilson also said that "we don't want to diminish" the risk to human life from the conflict.

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