“Buy on the sound of cannons, sell on the sound of trumpets.” – Nathan Rothschild
As the Iran war enters its’ second week, we have seen a near 35% spike in the price of oil since the war’s beginning. Markets are not afraid of war. In fact, most geopolitical conflicts result in relatively short-lived market corrections (see the attached chart from Goldman Sachs). Markets, however, do not like oil shocks because if sustained, the elevated price of oil and natural gas liquids eventually begin to weaken the economy (case in point: it is estimated that a sustained $20 increase in the price of oil could cost the consumer $150 billion in higher gasoline expenditures). The key to the market going forward will be the duration of the war and the price of oil. The longer the Strait of Hormuz remains restricted to tanker traffic the greater the risk of sustained high/higher oil prices. The longer the war drags on, the greater the probability of sustained high oil prices threatening the growth of the global economy. For the time being the stock market will remain volatile, trading higher on lower oil prices and trading lower on higher oil prices.
Market volatility the past week reflects constantly changing investor sentiment around war news. Oil, stocks and interest rates have bounced wildly in both directions. Monday, March 10 was a perfect example of news driving markets as stocks opened low, shot up, sold off and finished higher with tweets, headlines and rumors moving asset prices.
We take the long view overall and build your portfolios to suit your plans and goals. For some people that does mean holding additional cash to buffer turbulence. For others, that means keeping the holdings intact.
Attached are two pieces, one from First Trust showing the effect of geopolitical shocks on the stock market and one from Goldman Sachs showing how these types of selloffs can be short-lived.
War anytime and anyplace can be difficult and unnerving to watch play out, especially in real time. At Cascade, we are continuing to monitor its’ progress. If you feel the need, please feel free to reach out to us to discuss your portfolio holdings, allocation and risk tolerance.
First Trust - Wars, Geopolitical Shocks & The Stock Market
Goldman Sachs - Market Monitor
Best wishes,
Ken
Kenneth Beach
Co-founder and Managing Director
Independent, Individualized
Investment Advice and Financial Planning
Important information: Important information: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.
Ken Beach, Co-founder and Managing Director of Cascade Investment Group, member FINRA & SIPC. Advisory services offered through Cascade Investment Group, Inc.
Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.