What Happened: Hamas / Israel war

What’s It Mean: By now, you’re all aware of the tragic events that have unfolded this week within Israel. The events have created global uncertainty in a variety of markets. Ironically, for the majority of the week, stocks traded higher as a direct result of interest rates declining. Typically, when there is global uncertainty, capital runs into safety which remains the US treasury market. Consider for a moment, if you run a sovereign wealth fund in the Middle East and are concerned about your risk exposure. You may quickly shift money into US Treasuries for safety even if it is for a short period of time. When money flows into the US Treasury market, this creates increased demand for our bonds which then reduces the interest rates. A reduction in interest rates is a positive for stocks and is why, in our opinion, markets traded higher most of the week.

Why do we care? While the situation within Israel and Gaza is a day-by-day event, we feel this may give the Fed even further excuse to pause their rate hikes in the face of inflationary concerns. The US stock market seems to be much more concerned about inflation and interest rates than geopolitical issues, at least at this point in time. There is much speculation surrounding whether or not Iran will become more involved, and what the US response would be in that instance. Oil markets have been moving higher as has Gold.

For the last several years, it hasn’t proven beneficial to be diversified among various different asset classes such as Gold; however, that seems to be changing very quickly. I will be writing more about our positive outlook into year end and specifically into 2024, but for now, clients can feel comfortable in the fact that portfolios remain well diversified and in the areas we see great opportunity.

What Happened: Inflationary reports from PPI Producer Price Index and CPI Consumer Price Index.

What’s It Mean: Surprisingly, we got a very hot PPI number this week which would have recently increased rates and hurt stocks. Ironically, this did not happen which we feel is due to the shift in focus from US Inflationary concern towards the war overseas. CPI was in-line with expectations; however, still quite a bit higher than the FOMC target of 2%. Again, interest rates were not impacted and stocks reacted favorably.

Why do we care? It seems that investor concern is shifting away from the interest rate markets and inflationary concern and more on the geopolitical events unfolding abroad. As global capital moves into the safety of US Treasuries, the demand for our bonds is a boost for equities. Should this continue, we expect rates to decline further while stocks continue to benefit. We will watch this relationship closely.

Until next time

~ Quint

 

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