When Conflict Moves Markets

By John Furlow, TPF’s Executive Vice President

Over the last few weeks, regional conflict in the Middle East has escalated, with both its duration and magnitude still uncertain. Given the scale of the situation, it is worth considering how the conflict may affect financial markets and how investors may be interpreting the evolving outlook.

The conflict has already pushed oil prices higher. If a sustained energy crisis develops, it could weigh on global growth and significantly increase geopolitical and market risks. Since the conflict began, financial markets have become more volatile amid continued uncertainty over its duration and scope. Higher oil prices directly affect gasoline and household energy costs, while also increasing airfare and freight expenses and indirectly pressuring food prices. In the first week of the conflict, equity markets softened modestly and volatility rose, but there has been no sustained sell-off to date. As expected, some sectors have benefited while others have lagged, and the S&P 500 has experienced only limited short-term drawdowns followed by quick recoveries.

Historically, bond and Treasury markets have served as safe havens during periods of conflict. This time, however, that has not occurred. Instead, yields have risen and prices have declined as investors respond to increased inflation risks from global oil disruptions and uncertainty about government spending associated with the conflict.

Investors are closely monitoring the duration of the conflict, recognizing that a prolonged crisis could keep markets unsettled. As with most geopolitical events, time-tested investment principles remain relevant: focus on quality, liquidity, and diversification. Now is the time to maintain a long-term perspective, avoid major strategic or allocation changes in response to fast-moving and potentially short-term developments, rebalance toward strategic targets when volatility shifts portfolio weights, and maintain prudent diversification across asset classes.

For additional information about the current market landscape, CLICK HERE to view our latest investment webinar. I hosted this webinar with our partners from Segal Marco Advisors, and it is a highly informative discussion centered around what we’ve seen recently from the markets and what we can anticipate looking forward.