Transcript:
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.
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