How nervous are traders about an attack on Syria? Just look at the Dow Industrial Average as Secretary of State John Kerry began talking. It dropped as he talked tough at the start of his speech, saying the "U.N. cannot galvanize the world to act" and that the U.S. "makes our own decisions on our own timeline."
But the market came off its lows as he moved toward the end of his speech, where he promised the U.S. would have a "limited and tailored response," that "it will not involve any boots on the ground," that the "primary objective is to have a diplomatic process" and the U.S. knows "there is no ultimate military solution."
What would happen to the markets in the event of an attack on Syria? If it was done during market hours, there is fairly wide consensus on what would happen:
Syrian attack: brief, sharp encounter
- Stocks: Down
- Bonds: Rally
- U.S. Dollar: Rally
- Gold: Rally
The question is to what degree. A surgical strike that lasts a couple of days as advertised would see the safe-haven trade short lived and markets returning back to a focus on the Federal Reserve meeting on Sept. 17.
But few traders believe that this action would be self-contained or a one-off. A protracted conflict will disproportionately hit cyclical names because of worries about global growth.
So in a protracted conflict, here's what to expect:
- Oil stocks: Rally
- Defensive stocks: Rally
- Precious metals: Rally
- Commodity Stocks: Down
- Consumer Discretionary stocks: Down
It could even get worse. If some kind of bombing begins this weekend, and there is still some conflict with the U.S. two weeks from now, it could be enough for the Fed not to begin tapering.
That's why traders are so nervous about this event.
—By CNBC's Bob Pisani