Geopolitical Events Impact Financial Markets
Yesterday, stock prices and bond yields experienced a dip, while gold prices surged. The reason behind this market movement was a statement from a senior White House official, indicating that the US is preparing to defend Israel against a potential missile attack by Iran.
Potential Consequences of an Attack
- If Iran were to launch a direct missile attack on Israel, it could lead to severe repercussions for Iran.
- Iran is feeling pressure to retaliate due to recent Israeli military actions against Hezbollah, Iran’s proxy in Lebanon.
Market Reaction
Although the initial reaction of the markets was negative, the situation calmed down by early afternoon. It appears that the strike on Israel by Iran was limited and did not result in any serious casualties.
Assessment of Risk Scenarios
For the past year, a potential widening Middle East conflict has been identified as the number one risk scenario for the current bull market in stocks. Our assessment of the situation is as follows:
- 50% chance of a Roaring 2020s
- 30% possibility of a 1990s-style meltup
- 20% likelihood of a reprise of geopolitical turmoil similar to the 1970s
Market Strategy
Historically, geopolitical events triggering stock selloffs have presented buying opportunities. As of now, the underlying economic indicators remain stable.
Economic Indicators in the US
Yesterday’s economic indicators in the US were mostly in line with expectations:
- Job openings increased in August
- Quits declined
- The national M-PMI remained weak in September
- Construction spending unexpectedly fell in August, primarily due to a drop in outlays on single-family housing projects
Fed Chair’s Comments
Recently, Fed Chair Jerome Powell suggested the possibility of two more 25bps rate cuts by the end of the year. He also noted that the upward revisions in personal income indicate no urgency for rate cuts, aligning with our position throughout the year.
Analysis of Labor Market
The labor market continues to show stability:
- Hires and quits rates fell, as expected
- Unemployed workers are struggling to find jobs due to skill mismatches, not lack of demand
- Economy is at full employment on a “skills-adjusted” basis
Overall, the current geopolitical tensions are being closely monitored, but the underlying economic fundamentals remain strong.
Source: Original Post
Analysis
The article highlights the impact of geopolitical events on financial markets, emphasizing the importance of staying informed about global affairs. It also provides insights into the labor market and economic indicators, offering a comprehensive overview of the current financial landscape.
For individuals new to finance, understanding how global events can influence their investments is crucial. By keeping track of economic indicators and market reactions, individuals can make informed decisions about their financial future.