World Tensions; Not for the Market

There has been little to rattle the confidence of equity investor in recent months as geopolitical events, around the world, have come and gone.

The mullahs in Iran, the lack of an agreement between Great Britain and the EU, the ruling class in China, skirmishes in the Middle East or the U.S. political landscape, have all been little more than dust in the wind, as stocks have rallied and shrugged off most conflicts.

While Iran is working its way to being a nuclear power, and economic sanctions are isolating them as a purveyor of terrorism in the Middle East, the fear of reprisals has not tripped up the markets.

The U.S. took out one of the country’s generals, a person thought to be behind the explosive devices used in Iraq to harm American soldiers, and Iran fired back, injuring some American soldiers. Iran has threatened to retaliate, but the markets were unphased.

The major market indexes were only off by a fraction of a point afterwards. The threat of an all-out war is not taken seriously by institutional investors.

Reaction Different from the Past

In the past, a conflict like this would risk a disruption in the flow of oil from Iran, as well as oil shipments traveling through the Strait of Hormuz. This time, the U.S. is a net exporter of oil and the threat has been tempered considerably. Also, Saudi Arabia has been in Iran’s crosshairs and they have aligned with the U.S.

In early January, the price of Cushing oil was little changed. Oil futures barely budged.

While domestic problems have garnered a lot of media coverage and headlines, the impeachment hearings have not impacted Wall Street. The election in the U.K. brought more certainty of a negotiated Brexit.

What we see with many geopolitical events today is that they may impact local markets and assets that may be more directly tied to the tension or event, but in most other cases, any impact is short-lived.

Many investors also know that the Federal Reserve can intervene to calm volatile markets.

While some of the tensions between the U.S. and China have been over very real disagreements, the first phase of trade agreements has helped resolve one international event that kept Wall Street’s attention.

The underlying tension between the two countries hasn’t only resulted from trade disparities, and the U.S. getting the short-end of the stick, but also over China’s propensity for intellectual property theft and forced technology transfers. These have come at the expense of attaining access to Chinese markets.

A $200 billion increase in the purchase of U.S. goods by the Chinese has been a part of the Phase 1 deal. This has eased tensions and calmed one of the few geopolitical events that had rattled investors to any degree in the past year.

Unless there is a world event that results in prolonged consequences, the domestic markets are going to focus on earnings reports and the Fed’s low interest rates. That could change in a minute, but the markets have been mostly unphased in recent months