Assessing the Market Impact of Escalating War in the Middle East

As we pass the first anniversary of the Hamas terrorist attack on Israel, and as fighting intensifies, Mitch looks at the effects of conflict on the market. [Mitch on the Markets] Is an Escalating War in the Middle East a Threat to Markets? This week marked the first anniversary of Hamas’s terrorist attack on Israel, with fighting intensifying in the twelve months since. The latest development saw Iran launching ballistic missiles into Israel—which caused minimal damage—and Israel moving troops into southern Lebanon. In short, geopolitical tensions seem to have only gotten worse in the past year, and many investors worry about the accompanying uncertainty on trade, oil markets, and global economic growth. In the week ending October 4, for instance, crude oil prices soared 9.1% on concerns that Iran’s oil fields would be targeted. It was the biggest advance for oil prices since March 2023.1 Investor concerns are understandable. But given what we know from the long history of regional conflicts—and in particular conflicts involving the Middle East—we do not see a high likelihood of major ripple effects on global growth or equity markets. At this stage, we also see a very low likelihood of war spilling over into major economic centers, like the U.S., Europe, Japan, and China, which we think means the impact on global GDP will be negligible. [Is Trouble Ahead? Uncover Insights in Our Investment Report!]( Worried about how geopolitical tensions might affect your investments? While market volatility poses challenges, it also brings opportunities. Learn how to navigate these uncertain times and strengthen your portfolio in our new [October Stock Market Outlook Report 2]( which contains key insights on: - Capital markets commentary - Key U.S. economic data - Global market data - Zacks S&P 500 earnings insights - Zacks sector picks - And more… If you have $500,000 or more to invest, request our [free October Stock Market Outlook Report 2]( today! [Download Our Brand New Stock Market Outlook Report]( [Claim Your Free Report]( To be fair, Iran’s recent barrage of missiles did result in market volatility in both equity markets and oil markets, as did Hamas’s initial attack on October 7, 2023. But short-term volatility in response to the outbreak of geopolitical crises and regional conflicts is historically common. Looking back at 54 crisis events since 1907, the Dow Jones Industrial Average has fallen an average of -7.1% during the crisis period, with the index posting an average gain of +9.7% in the six months that followed.3 We also know that looking back at conflicts since 1925—including the Korean War, Vietnam, the Cuban Missile Crisis, the Iran-Iraq War, two U.S. wars in Iraq, and so on—it was only World War II that resulted in a bear market. The Iran-Iraq War lasted from 1980 to 1988, which corresponded with a strong bull market that lasted from 1982 to 1987. And with the current war, since the fighting broke out one year ago, the S&P 500 and global stocks as measured by the MSCI World are up approximately +30%.4 [MOTM_10122024_graph1]( Source: Federal Reserve Bank of St. Louis 4 The point here is not that armed conflict is bullish. The point is that uncertainty leading up to a conflict is what tends to weigh on markets. Once the conflict is averted or fighting breaks out, the uncertainty fades and markets can start to price-in the effects on corporate earnings, financial markets, and global economic growth. In this instance, I think markets are telling us that the impact on global economic growth should be minimal. There’s an argument that the real economic risk is rising oil prices, not necessarily a blow to global economic growth or corporate earnings. That’s fair, but it’s worth remembering that oil prices (chart below) remained firmly above $100 a barrel from the beginning of 2011 through the summer of 2014, during which time the U.S. economy grew and the stock market went up by over +50%. Higher oil prices do not necessarily mean economic recession or weak markets, especially in the current environment where oil prices seem to be more range-bound in the $70 - $80 a barrel zone. [MOTM_10122024_graph2]( Source: Federal Reserve Bank of St. Louis 5 It is also important to note that Iran produces a little over 3 million barrels per day of oil, which is about 3% of global daily output. That’s not insignificant, but it’s also true that because of Western sanctions, about 90% of that oil gets exported to China. Saudi Arabia and other OPEC+ countries have plenty of spare capacity to make up for any hit to global supply, which they would likely do if prices continue to rise. Bottom Line for Investors Geopolitical crises and wars are highly undesirable for their impact on the daily lives of affected civilians, global stability, trade, and so on. But a global recession requires trillions of dollars’ worth of damage to the global economy, which current crises do not seem capable of delivering. S&P 500 companies earn less than 1% of revenue from the affected regions. Market volatility may continue if the conflicts escalate, and news coverage will almost certainly be constant. But investors would be wise to foresee this environment for the next few months—or perhaps longer—and try to remember that the desire to react to a crisis is almost always counterproductive and costly. Now is a time to remain patient and focused on U.S. economic fundamentals, which we think remain quite strong. To help you do this, I recommend reading our comprehensive [October Stock Market Outlook 6](. This report offers in-depth analysis and actionable insights designed to help you stay ahead, covering key factors such as: - The Presidential election and economic policy - Key U.S. economic data - Global market data - Zacks S&P 500 earnings insights - Zacks sector picks - And more… If you have $500,000 or more to invest, request our free [October Stock Market Outlook Report 6]( today! [Claim Your Free Report]( About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. At Zacks Investment Management, we work with clients with $500,000 or more to invest, and we use this independent research, 35+ years of investment management experience, and tools we’ve developed to design customized investment portfolios based on each client’s individual needs. The end result is investment management that is research driven, results oriented and client focused. [Mitch on the Markets] Talk to a Zacks Wealth Advisor today. [Schedule Your Chat]( [facebook]( [linkedin]( [twitter]( © Zacks Investment Management | [Privacy Policy]( 1[Morningstar. 2024.]( 2 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion. 3[NBER.]( 4[Fred Economic Data. October 7, 2024.]( 5[Fred Economic Data. October 2, 2024.]( 6 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion. DISCLOSURE Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation. Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein. The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index. The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The MSCI ACWI ex U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the U.S. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. The S&P Mid Cap 400 provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. Zacks Investment Management 10 S. Riverside Plaza Suite 1600 Chicago, Illinois 60606-3830 --------------------------------------------------------------- If you do not wish to receive further email solicitations from Zacks on behalf of its partners, please click [here]( to unsubscribe.