How Middle East Conflicts Have Historically Impacted Markets
Are you concerned about the events in the Middle East? In this video, I'll be covering how conflicts in the Middle East impact markets and the economy., and what that means for investors like you.
My name is Nate Baim, and I am CERTIFIED FINANCIAL PLANNER at Pursuit Planning and Investments where I help working professionals make informed decisions with their money and life.
The recent attack by Hamas on Israel has already resulted in the loss of thousands of lives. This is a tragedy for both the region and from a humanitarian perspective.
While the human dimension of this conflict is everyone's main focus, investors may also wonder how Middle East conflicts tend to impact markets. In the next few minutes we'll share a few insights on how this has played out over history.
First, this chart shows a selection of global and regional conflicts, including several in the Middle East. The lines show how the S&P 500 performed immediately prior to and over the one year after each event. The table summarizes how markets performed over 3-month, 6-month, and 1-year timeframes.
What you can see is that market performance varies. In some cases, markets were down slightly in the first six months. However, in most cases, markets then recovered and were higher over the following year.
The key driver in all of these cases is whether the economy was doing well. In the case of 9/11, markets and the economy were struggling after the dot-com bubble burst, resulting in a multi-year bear market.
During the other events which occurred after the global financial crisis, markets were in a strong bull market. This tended to lift returns even as uncertainty continued. We should note that markets have not fully recovered from Russia's invasion of Ukraine in early 2022, but this is due to factors such as inflation, the Fed, and tech stock valuations.
Second, it's important to not react to short-term market events and headlines, regardless of how impactful they may be.
With conflict in Ukraine, increasing tensions in the Taiwan Strait and South China Sea, and now the events in Israel cause many to question if the next 30 years will be as peaceful as the previous 30 years.
This is a great chart highlighting the performance of the S&P 500 over nearly a century. You can see events such as World War II, the Vietnam War, and the Cold War created challenges for markets, but eventually growth continued.
This is not to downplay the severity of events in the Middle East and Israel right now, and it's also no guarantee of the future.
However, this chart emphasizes the importance of maintaining a long time horizon when investing. Your financial plan dictates the risks you can afford to take in your portfolio.
Finally, global conflicts and wars in the Middle East can have a direct impact on oil prices. So far, oil prices have not moved significantly following the attack on Israel.
This is especially important today given how much oil can affect inflation and Fed decisions. However, there have also been many historical examples where conflicts did not result in higher oil prices, including Russia's annexation of Crimea in 2014 and the Iranian drone attacks on Saudi in 2019. This goes to show that it's very difficult to predict the direction of oil.
In the end, investors should maintain perspective on these events. The humanitarian dimension is still the most important, and investors should resist the urge to overreact in their portfolios.
Having a financial plan which is aligned with your goals and values remains paramount. Your plans serve as a blueprint to the strategic decisions you face with your income and investments.
I hope you found these insights helpful. As always, please feel free to reach out if you would like to discuss further. Thanks.
Have something on your mind?
Pursuit Planning and Investments, LLC (“PPI”) is a registered investment advisor offering advisory services in the State of Oregon and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Past results do not guarantee future results. Please contact us at 971-803-5948 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from PPI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.planyourpursuit.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.
This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal the performance noted in this publication.
The information herein is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Pursuit Planning and Investments, LLC (referred to as “PPI”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.
All opinions and estimates constitute PPI’s judgement as of the date of this communication and are subject to change without notice. PPI does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall PPI be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided herein, even if PPI or a PPI authorized representative has been advised of the possibility of such damages. Information contained herein should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.