Fundamental factors like the U.S. economy’s strength, Federal Reserve monetary policy and corporate earnings tend to have the greatest impact on capital markets. Yet investors also keep an eye on geopolitical factors. Since early 2022, global conflicts have garnered headlines, with the most notable major confrontations in Eastern Europe and the Middle East. Although events such as these can contribute to global economic instability, the capital market impacts of these conflicts so far appear somewhat limited.
The Middle East conflagration has become increasingly fraught, with Iran and Israel now exchanging air strikes. Israel’s invasion of the Gaza Strip following the surprise October 7, 2023, attack by Hamas on Israel continues. In recent months, the battle extended into Lebanon, as Israel seeks to take out key leaders of another of its enemies, Hezbollah.
Additionally, there is the ongoing war between Russia and Ukraine, now well into its third year. “The conflict is taking on characteristics of the first World War, with little progress on the front lines and a significant human toll,” says David Bridges, senior geopolitical and security advisor at Fidelity Management and Research Company. Bridges, who was a former operations officer at the CIA, says “Russian President Vladimir Putin is using rhetoric to scare European leadership, and try to decouple Europe from the U.S.” Bridges believes fighting will continue with no major changes in the front lines, and no peace talks anytime soon.