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Fall 2024 Post-Election Webinar

Gauging the market impact of election results.

Key takeaways

  • An escalation in global conflicts raises questions about potential economic and market ramifications.

  • The conflict between Israel and Hamas appears to be expanding into Lebanon, as Israel battles with Hezbollah.

  • In recent months, the Russia-Ukraine war intensified as Ukrainian troops pushed into Russian territory.

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.

Oil markets unfazed

Oil markets are considered susceptible to current tensions, given their proximity (Middle East, Russia) to major oil production regions. Although there’s been some fluctuation in oil prices, they’ve remained relatively stable in recent months. “Israel’s recent bombing in Iran spared nuclear and oil export facilities,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “The market interprets this more modest attack as a sign of potential de-escalating of the level of tensions between the two countries.” In the wake of the attack, the price of a barrel of oil dropped below $70. Oil prices have remained below $80/barrel since mid-summer. 1

“The key question regarding energy markets as we watch the Middle East conflict unfold is what happens if the war widens, if others start to get involved and does that impact oil prices a little more,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management.

Chart depicts crude oil prices per barrel: 1/1/2022 - 10/30/2024.
Source: U.S. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma, retrieved from Federal Reserve Bank of St. Louis. Data as of October 30, 2024.

“The key question for energy markets as we watch the Middle East conflict unfold is what happens if the war widens, if others start to get involved and does that impact oil prices a little more,” says Haworth. "Still, it’s important to remember that compared to other periods, oil prices today are on the low end of the scale.”

Other commodity markets level off

Both Russia and Ukraine are major global suppliers of wheat and other agricultural products. This contributed to a temporary spike in agricultural commodity prices in the early weeks following Russia’s invasion of Ukraine in February 2022. Wheat prices, for example, have remained in a much lower trading range since that time. 2

Chart depicts wheat prices on the Chicago Board of Trade between January 2022 - October 25, 2024.

Source: WSJ.com. Price represents value of 5,000 bushels of wheat, traded on Chicago Board of Trade. As of October 25, 2024.

Haworth notes that given the duration of the Russia-Ukraine conflict, commodity markets have generally adjusted to changing conditions. “The only durable negative impact has been on German chemical companies, which are suffering due to the lack of cheap natural gas.”

Europe is likely to feel more impact than is the case domestically. “In the U.S., we’re a bit more insulated from the economic fallout from the conflicts compared to other parts of the world,” says Tom Hainlin, national investment strategist for U.S. Bank Asset Management.

Investment considerations in a period of uncertainty

From an investment perspective, current conflicts have been overshadowed by other underlying market and economic fundamentals. In the past two years, equity markets, in particular, have prospered. “Capital markets won’t deal in guesses about what may come,” says Haworth. “They’ll wait for something more concrete.”

Be sure to talk to your financial professional about what steps may be most appropriate for your circumstances.

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Disclosures

  1. U.S. Energy Information Administration, Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma, retrieved from Federal Reserve Bank of St. Louis. Data as of October 30, 2024.

  2. WSJ.com. Price represents the value of 5,000 bushels of wheat, traded on Chicago Board of Trade. As of October 25, 2024.

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