Earnings vs. Geopolitical Events


The market has a lot of headwinds and uncertainty right now with a conflict in Israel, questions about what the Federal Reserve will do, and a potential government shutdown next month. Still, one bright spot that is a key driver of equity markets is corporate earnings. Third quarter earnings season started strong last week, with some big banks reporting better-than-expected earnings results. Analysts expect S&P 500 companies to report back-to-back quarters of earnings growth, which is following an earnings recession seen earlier in the year. Analysts are also calling for earnings to continue to grow next year. We are looking to see if profit margins improve for the second quarter. As profit margins fell earlier in the year, we’ve seen many corporations improve efficiency ratios and pass higher costs on to a strong consumer in recent months, leading to higher profits, which has been a pleasant surprise for corporations. While stocks move on earnings reports, the profit margin surprises make company stocks move. As earnings season kicks into gear this week, strong corporate earnings and profits can help the market surpass all the current headwinds.


International Issues

Our thoughts and prayers are with everyone involved in the current situation with Israel. We wanted to cover what that situation means for the US regarding markets and financials. In this episode, you can see a chart that shows how stocks usually react to geopolitical events. Often, these events happen, and people think they need to sell. One of the interesting things is that this was only the fifth time that the market was up when a major event happened. This time, the market was up 0.3%. It wasn’t up a tremendous amount, but those previous four times where the market was up the day of the event, the max drawdown was 1.5%. On a market scope, it seems to have very little impact. The average drawdown for all these market shock events is 4.7%, which is nothing crazy. Another chart in this episode shows how markets react during recessionary and non-recessionary times. This is something that is hard to translate today. Are we going into a recession? Have we already had a recession?


Oil Prices

How will the Israel-Hamas war affect oil prices? The Middle East is a huge oil supplier, and it’s very interesting to see how crude oil could react. On a chart shown in this episode, you will see there have been some ups and downs. However, there have been more ups, especially if you look at the specific Middle East events like the 1979 Iranian Revolution and the 1973 Oil Embargo. All these events, for the most part, resulted in higher oil prices. We will see how this affects the consumer if oil prices start to be elevated again. We saw a huge pop on day one of the war. The next 2-3 weeks will be very important as we see if the market can focus on what’s hopefully good corporate earnings and overpower all of what’s going on geopolitically overseas.



Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Email Bobby Norman here

Ty Miller
Associate Vice President
Wealth Consultant
Email Ty Miller here

Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based 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.

Economic forecasts set forth in this presentation may not develop as predicted.

No strategy can ensure success or protect against a loss.
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