We are devastated by the tragic events unfolding in Israel catalyzed by the horrific Hamas attack over the weekend. Apart from questions about the human impact of these shocking acts, you may question what this means for markets. Below are our comments outlining how we believe these events will impact markets in the near and long term. So far, the near-term effects have not been as pronounced to financial markets as initially expected. Of course, we will continue to monitor the situation closely.
Near-Term Effects: - Gasoline prices could increase. The rise in oil prices might lead to a price bump at the pump, similar to what happened after Russia attacked Ukraine. In 1973, during the Arab-Israeli war, oil suppliers from the Middle East cut off the U.S. for its support of Israel, sending U.S. gas prices sky-high. Though current prices have calmed after the initial leap in crude oil prices, we believe we will see an increase in oil prices in the short term.
- International flights have already been canceled, and schedule disruption may continue. Flight cancellations and delays began to occur in Israel and surrounding countries over the weekend. There could be a ripple effect for some travelers as carriers cancel or reroute flights to the affected region. Because of this, we may also see short-term volatility in airline stocks.
- Investors’ flight to safety could strengthen U.S. dollar, gold. The rush Monday morning to longstanding safe-haven commodities like gold and the U.S. dollar has since stabilized. Most investors appear to be in a holding pattern after the market initially reacted to the Israeli news, indicating there is no need to be hasty. However, if similar rushes continue to occur in the future, it’s possible the dollar could strengthen, making the cost of American exports too pricey for foreign buyers.
Long-Term Effects: - The war on Israel may remain a regional conflict, like the war on Ukraine. Similar to the unrest in Ukraine, we do not expect the attack on Israel to significantly impact U.S. or global economies. U.S. markets have not always had minimal responses to foreign wars. Wars from the past in the Middle East increased volatility in the U.S. market due to the importance of oil. Since then, the production of alternative fuels in the U.S. means our country is less dominant on oil imports from the Middle East.
- Logic and recent history suggest that the conflict will remain localized and, as we are already seeing to some extent this morning, traders will return their focus to the Fed, combating inflation and interest rates. We could see continued weakness in the market for some time, but as tragic as the situation is in so many ways, the war between Hamas and Israel is not in itself a reason to sell stocks.
What has taken place in the past few days is a horrible human tragedy. As a firm, we are saddened by this tragedy and keep all parties affected in our prayers. Unfortunately, these conflicts are not new to our history or markets. As always, we consider these events, among others, when reviewing your assets. However, the best plan of action is to focus on your long-term goals and stick to your established financial plan. Please don’t hesitate to call or email us with any additional questions you have. We will continue to keep you apprised as events unfold. |
