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Market Update: 5 Top Influences in 3 Minutes

Market Update: 5 Top Influences in 3 Minutes

October 20, 2023

The financial markets have been in the media quite a bit, due to high levels of global economic and political news. There's a lot going on that can impact the markets and investments short-term. Here’s a brief update on what we're keeping an eye on right now.


The Israeli/Palestinian war – The conflict in Gaza and Israel is horrifying to watch from a humanitarian perspective. Just two weeks since Hamas’s terrorist attack on Israel, global leaders are settling in for a long-term war. Middle Eastern conflicts at any level cause real concerns about oil and gas prices, which have risen over the past two weeks. The fighting, which has thus far been contained to Israel and the Gaza Strip, is not currently posing an elevated risk to oil supply. However, if Iran is drawn into the conflict, the two million barrels of crude oil that it exports daily, as well as other fuel shipments in the Middle East region, are expected to be disrupted. These disruptions typically cause oil prices to increase significantly.


The shortage of US oil reserves and future oil prices - President Biden sold nearly half of the US’s Strategic Petroleum Reserve when oil prices spiked last year due to Russia’s invasion of Ukraine. While that helped to lower energy prices at that time, the move is now being criticized. The US still has the largest reserve in the world, and we produce a significant amount of our own energy. Washington is now in the process of shoring up the reserve. The concern isn’t about running out of fuel - but it is definitely about not having the leverage to use those reserves again to control prices.


Fed Chair Jerome Powell - The markets move every time Jay Powell speaks, and Thursday was no different. While the Fed is not expected to raise rates in its upcoming meeting, Jay Powell struck a balanced tone, indicating that the strong US economy will need to cool to tame inflation and achieve the Fed’s mandated 2% inflation rate. This left the door open to future rate increases and extended the Fed’s “wait and see” approach. Financial markets like certainty, but instead, Powell’s speech lacked clear direction. 


Inflation and Bonds - Inflation has been creeping back up over the past few months. Even a perceived or expected shortage of oil could increase prices - a major input in manufacturing and transportation costs - creating more inflation. Even if the Fed isn’t currently raising rates, Treasury yields have surged this week as the bond market digests the current persistent inflationary environment. When yields rise, bond values usually drop, making some bonds more useful for their income as opposed to their sale price.


Earnings Season - Q3 earnings season has just kicked off, with mixed reviews even amongst the “darlings.” Case in point: Tesla had a Q3 earnings miss resulting in a 10% price drop, while Netflix surprised to the upside and gained over 16%. S&P 500 earnings overall are expected to be down for a fourth consecutive quarter, this time by only 1%. On the bright side, many companies, like Netflix, are beating expectations and providing positive future-looking guidance. 


What does all of this mean to you? There are real political and economic forces present throughout the world that are concerning, but they are not historically unique, and they don’t have a perfect linear cause-effect relationship. Rather, they exist in an interconnected circle. For example, higher oil prices are expected to prompt higher inflation and therefore higher interest rates. However, high oil prices may cause a slowdown in the economy, which may encourage the Fed to decrease rates sooner than expected, which could boost the financial markets. History tells us that financial markets recover after a crisis, and the key to benefiting from the recovery is to be invested when it happens – which is hard to predict. This is a time for long-term investors to stay diversified, invest in high quality companies, know your risk level, and make sure your cash is working for you based on today’s higher interest rates. 

We are currently working on our comprehensive quarterly market report, Risks and Opportunities, which is slated to be released in the coming weeks. We will have a deeper dive on all of these topics, with updated data which is sure to change over that time. Stay tuned.


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Debra Brennan Tagg is a CERTIFIED FINANCIAL PLANNER™ Professional and the creator of the DBT360 Financial Plan, a proprietary program that helps her clients prioritize their goals, leverage their resources, and address their risks. She is the president of BFS Advisory Group and teaches the public and the financial services industry about the importance of values-based financial planning and investor education.