The Market Reaction to the Israel-Hamas Conflict | Episode 56 | 10-09-23

What if the geopolitical tension weren’t just about the nightmarish scenes we witness on the news, but about how these situations impact our economy and financial futures? Join us as Megan Horneman, our Chief Investment Officer, describes the volatile markets, highlighting the ripple effects the recent conflict between Israel and Hamas has had on the global economy, the sharp rally of traditional safe-haven assets, the rebound of equity markets, and a potential surge in crude oil prices and its possible implications for long-term inflation.

These tumultuous times could lead to a slowing economy, weakened consumer and business confidence, and tight lending conditions. Megan also delves into the potential repercussions of the Federal Reserve's future actions and paints a picture of what the future might look like if these conditions persist. Amidst the uncertainties, Megan offers some insight and hope, guiding us in navigating these unpredictable events. If you're looking for a comprehensive understanding of the present market conditions and their potential impact on your financial future, this episode is a must-listen.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors. We're coming to you today with our regular segment of Markets with Megan and we want to address some of the developments that we've seen over the weekend, specifically in the Middle East and the conflict with Israel and Hamas. We understand that the images and videos we've all witnessed over the weekend are just horrific. It's the only word that we can say to describe that. We're not geopolitical analysts, but we are market analysts, and what we're going to focus on today is what we've seen in the markets overnight, as well as the developments today and some of the things that we're looking for going forward, especially as we continue to get more information out of the Middle East. First of all, the market reaction today was coming in. This morning, markets were down triple digits. This is equity markets in the US. Most of the international markets were down between a half a percent and a percent. We saw traditional safe haven assets like the dollar and gold. They rallied sharply today, but by the time the market is closed today, we saw a dramatic rebound in the equity markets. The other thing that we're watching today is the move we've seen in crude oil. Crude oil is up, but it's not as high as we saw two weeks ago when it did reach its year-to-date high. However, what the crude oil tends to always have an impact be impacted when we have conflicts, geopolitical conflicts. So what we expect going forward is that oil is probably going to remain higher for longer, similar to our view on interest rates. What we're going to watch is from an economic impact, the direct and the direct impact to our economy. From a direct side, we have very little trade with Israel. Our trade with Israel is about a half a percent of our entire total trade. So from a direct economic impact, we don't see that at this time. However, the indirect impact, as we mentioned, can be on higher crude oil prices for longer.

The consumers already stressed We've discussed that at numerous different podcasts we think this will put added pressure again on the consumer, also from a confidence perspective. Let's be realistic. This is an awful thing that we're all witnessing. So if we're already looking at consumer confidence, that's very shaky. So this can have an impact on the consumer at a time that we don't need it. From an equity market and bond market perspective, the bond markets are closed today. We'll see how they open up tomorrow. From an equity side.

We will continue to watch on the developments as they unfold, but we think volatility is probably going to continue for many reasons, not just because of the new developments with the geopolitical tension, but also all of the other factors we've outlined before. The economy is slowing, consumer confidence is weak, the consumer is stretched, businesses' confidence is starting to weaken, we have tight lending conditions and now the Federal Reserve is going to be in focus, especially because of what's going on in the Middle East. Higher crude oil prices for longer can put upside pressure on inflation, so that's something the Fed's going to have to address. We still think the Fed has one more interest rate hike in them, whether it's November or December. That's not really a concern of us that we still do think they have another hike in them.

We'll continue to keep you updated if we have any other information that we'd like to share as far as asset allocation and any other impact from the economy that we see from the very horrific activities that are happening in the Middle East. If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com. Thank you.