On February 28, US and Israeli forces launched airstrikes against Iran, citing the need to take action against Iran’s nuclear weapons program and calling for regime change within the country. Iranian Supreme Leader Ali Khamenei was killed in these attacks.
Iran has responded with missile and drone attacks on Israel, US bases in the Middle East and several US-allied Arab states, including the United Arab Emirates, Kuwait, Bahrain and Oman. Both sides of the conflict have targeted their targets inside Iraq.
All of the countries mentioned have reported casualties in recent exchanges of attacks (including the US, which lost several troops stationed in the Middle East), raising fears that this could be just the start of a long regional war.
The Middle East is home to hundreds of millions of people and a large portion of the world’s energy resources, which is why the clashes are already affecting financial markets around the world, and could have a wider economic impact in the coming weeks. Here’s what to know.
Commodities: Oil, gas and gold are on the rise.
At the time of writing, five of the twelve member countries of the Organization of the Petroleum Exporting Countries (OPEC) have been attacked in recent hostilities, highlighting how violence can affect global oil supplies.
Brent crude oil futures – the main benchmark for the global market price of a barrel of oil – opened on Sunday night about 8.5% higher than their last week’s close. After trading at or below the $70 line for most of last week, the price of a barrel briefly rose above $80 at some points on Monday. Natural gas futures saw similar gains between Friday and Monday.
As we’ll discuss below, this disruption in the global energy industry could have significant stock market implications. It is also already growing. Gas prices. But it has had the biggest impact on commodity traders, who didn’t have to wait until Monday morning to see the impact of this weekend’s news on their positions.
A non-energy commodity that has also been affected by recent geopolitical turmoil is gold, viz Gold bullion Often considered a safe store of value in times of crisis. An ounce of gold hit a high above $5,400 an ounce on Monday morning, before retreating to the mid-$5,300 range.
Stocks: Energy and defense are up, travel stocks are down.
The S&P 500 index traded mostly flat on Monday as a whole, as some of its major components (such as big tech) have little exposure to events in the Middle East — but certain sectors of the market suffered volatility on the news.
Stocks in some industries such as oil companies and defense contractors rose on Monday. Higher global oil prices mean higher margins for the oil and gas industry, and the prospect of a major war could increase government demand for defense contractors.
For example, shares of Chevron Corp. (CVX), the second-largest U.S.-listed oil company by market cap, rose 1.52% on Monday. RTX Corp. ( RTX ), the largest publicly traded U.S. defense contractor by market cap, rose 4.71%.
Other parts of the stock market reacted negatively to this weekend’s news – in particular, travel stocks.
United Airlines ( UAL ), the second-most valuable U.S.-listed airline, saw shares fall 2.91% on Monday, with other airlines posting similar returns. Higher fuel prices, as well as travel restrictions across the Eastern Mediterranean region, are likely to have a negative impact on airlines. Some cruise line operators were hit even harder: Carnival Cruise Lines ( CCL ), the second most valuable in the U.S., saw shares sink 7.64 percent.
Should you try trading the latest news?
Due to the short-term nature of these strategies, day traders and futures traders may have no choice but to react to the past weekend’s news and its impact on the markets.
But for investors with a long-term horizon, such as those building a retirement nest egg, recent volatility trades are unlikely to benefit. A study published in 2022 Journal of Finance Checked out the top stocks bought on Robin Hood between May 2018 and August 2020, and found that their average 20-day return was -4.7%, suggesting that most short-term traders on the platform lost money over that period..
Investing experts instead recommend staying the course, and making steady contributions to buy-and-hold investments like index funds during periods of volatility.
If you want to invest for the long term — but think you might be swayed by news events like last weekend — take yourself out of the equation. Robo Advisor Or one Online financial advisor Managing your portfolio may also be worth considering.
Neither the author nor the editor had any position in the aforementioned investment at the time of publication.
