about the long-term impact on stability in the region and its potential ripple effects on global geopolitics and energy markets.
Investors have been preoccupied with various concerns lately, but one issue seems to have slipped under the radar. The Israel-Hamas war, which started in early October, initially had a significant impact on global financial markets. Stocks plummeted, the Israeli shekel declined, and oil prices surged. However, these worries have since diminished.
Although there were fears that the war could spread to key oil-producing countries and further disrupt global crude supply, oil prices have since retreated and remain below the highs reached in September. Additionally, despite Treasury yields hovering around highs not seen in over a decade, there hasn’t been a resurgence of the flight to safety that occurred at the beginning of the conflict. This is surprising, as government debt is usually considered a safe haven during times of economic uncertainty.
So why are investors brushing off the Israel-Hamas war? According to experts, Wall Street is currently more focused on other immediate threats, such as the Federal Reserve’s campaign to raise interest rates and the ongoing earnings season. With about 24% of S&P 500 companies having reported third-quarter results, and 78% of them beating expectations, investors are eagerly awaiting earnings reports from tech giants like Alphabet, Amazon, Microsoft, and Meta Platforms. These reports could potentially revive the market rally that has been stagnant in recent months.
The US stock market experienced a powerful rally in the first half of the year, but it has stumbled since then. Despite multiple rate hikes over the past 19 months, economic data shows little sign of cooling, and resurging inflation has raised concerns that the Fed may keep interest rates elevated for an extended period. As a result, the S&P 500 is on track for its third consecutive monthly decline, and the Dow Jones Industrial Average has erased all its gains for the year. If the war escalates or the economy starts to buckle under the pressure of rate hikes, investors predict further declines.
Although Wall Street hasn’t completely ignored the potential impacts of the Israel-Hamas war on financial markets, traders have sought safety in assets like gold, utility stocks, and even Bitcoin in recent weeks. If the war intensifies unexpectedly, stocks could experience a significant drop, accompanied by a retreat in yields as investors turn to bonds for refuge.
In conclusion, while the Israel-Hamas war initially rattled global financial markets, investors are currently more concerned about the Federal Reserve’s interest rate hikes and the ongoing earnings season. The war’s impact on financial markets may still be felt if it escalates or if the economy falters under the pressure of rate hikes, but for now, other factors are capturing investors’ attention.