As War Erupts in the Middle East, How Does It Change the Market Dynamic?
Oil and gold spike, stocks fall on Israel's attack on Iran. But for a technically strong market offering little opportunity, a shakeup may be what is needed.
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Israel has launched a massive attack on Iran’s nuclear program and military leadership Thursday night. Prime Minister Benjamin Netanyahu said the attacks will continue “for as many days as it takes.” President Trump stated that the U.S. wasn’t involved in Israel’s operation and urged Iran to make a deal before "nothing is left."
It is reported that the Israeli Air Force and its allies have intercepted more than 100 drones launched by Iran in retaliation.
The question now is how long Israel will continue its efforts to wipe out Iran’s nuclear capabilities and how extreme will be Iran’s retaliation.
Markets around the world are trading lower as oil and gold prices spike higher. The S&P 500 is trading down a little over 1% in the premarket Friday and is off its lowest overnight levels. Oil is about 8% higher, and gold is up less than 1%. Bonds, which are typically a safe haven, are trading lower and are not acting overly concerned.
So far, the corrective action in equities is relatively mild and attracting some aggressive dip buying. The immediate economic risk is that a spike in oil will lead to a surge in inflationary pressures. At this point, the price fluctuations are just an adjustment for shorter-term risk, and there is no certainty that there will be a shift in global supply and demand. That can change, of course, and if there is a longer-term impact on shipping and supply, it will give the Fed pause about cutting rates.
This news is occurring at a point when many market participants are looking for corrective action, the indexes become technically extended, and positive momentum is stalling. The biggest problem is that while the market is technically strong, it is offering little opportunity. A shakeup caused by the events in the Middle East may be what this market needs to create better conditions for investors looking to put cash to work.
There are already signs of a quick recovery from these events, which illustrates how anxious many investors are to put more capital to work.
At the time of publication, Rev Shark had no positions in any securities mentioned.
