Middle East Noise
Middle East crisis events happening right now and as we look at historical standards to see how the market reacts it shows a little bit of positivity. No guarantees, but historically, stocks and oil tend to outperform defensive assets like gold and treasuries in the months after a Middle East crisis. We usually see gold and treasury spike within a week or two after a crisis. If we take a look at the data, the reactions within the market to the 20 Middle East crisis events of the past three decades show that on average the S&P 500 was up 65% after one month, up 75% after three months, and oil was up, 80%. Barring a major escalation, the backdrop for equities remains strong.
The only way the news happening right now could impact the U.S. economy is by the U.S. consumer. We talk all the time about the most powerful force within the U.S. economy and that is the almighty consumer. Will these oil spikes, that historically have been up 80% of the time after these crisis’s, hit the U.S. consumer? This will be the real first test of production in the United States. Can U.S. production, keep the consumer out of this conflict? Recent history says that they can. The recent bombing of Saudi Arabia resulted in a huge 10% spike in oil and then it came right back down because our producers greatly increased production. If we could do that again, it will greatly benefit the U.S. market, U.S. energy producers and the U.S. consumer. It’s kind of a win, win, win. You don’t want any conflict to go too long or to be negatively impactful to the global situation, but the United States could be a little buffer, historically speaking. Anxieties are those events that nine times out of ten will never occur. Once you have the knowledge that gives you the confidence to confront the fear, they are no longer anxieties. We’re going to be looking for that knowledge and information to let us know how to navigate through these geopolitical events.
Changes from The Fed
Former Fed chairman, Bernanke, over the weekend was at a conference in San Diego and presented a paper that basically said that the Fed has the tools needed, in their back pockets, on how to combat any possible trouble that might present itself. Clients have asked how the Fed could do anything else since the rates are already so low. There are three main things that they could potentially do and that’s quantitative easing, which we have talked about a lot on our vlogs, the could put more guidance on communication and working with other agencies like treasury and the tax code, and then they can look at the 2% inflation target. We have a huge Federal Reserve and a huge market which means there’s plenty of lift that can be done if needed.
Continue the Growth
The noise in the news right now is going to be Iran. Iran is going to dominate the headlines this week simply because of the magnitude of it. We know this to be the case but let’s get back on a geopolitical level and look back and reiterate what we said last week. The U.S. consumer is obviously doing well but we will be watching to see if they can withhold this test. As you drive by houses and see boxes in front of houses and people in the waiting lines and pickup lines of retail stores, that’s a good indication that the consumer is still healthy and going strong. If we’re keeping inflation low, unemployment low, and there’s still room for growth then that’s a great thing. From a U.S. standpoint, we still want to see that growth continue.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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