In modern times (post-Second World War), wars have had temporary impacts on markets. The most recent escalation in the Middle East and the ongoing war in Ukraine and Russia are recent examples. The first Gulf War in 1991 is another. Short or long lived, their impacts are likely to be temporary in terms of aggregate demand or supply on corporate fundamentals.
The world tends to adapt to these circumstances surprisingly quickly. The supply chain disruptions for food and energy coming from Russia and Ukraine took a while, but is rarely a discussion point in earnings calls anymore as the war rages on.
Ongoing tensions with AI and computer chips amid U.S.-China tensions are another case in point. In general, we do know that wars are inflationary as they increase spending and reduce productivity overall.
Regionally, however, distortions can have a longer-lasting impact. The vast majority of global conflicts have not occurred in North America and have less impact on the largest economy in the world. Obviously, 9/11 was an exception.
We have seen a lingering growth impact in Southeast Asia and Europe from the Russia-Ukraine war as it has a more direct drive to growth, and inflation influence though Japan has been a standout. For most investors, your portfolio construction should be able to benefit from a geopolitical dislocation rather than fear it or run from it. Think rebalancing versus panic or fear.
For the more idiosyncratic (stock/asset specific) day traders that have far more time-sensitive thinking, it likely matters much more. Think of a company that relies on oil prices (airlines, cruise ships) or flour prices (consumer goods) as examples. For most investors, you should not let it impact your longer-term goals.
For those that want to do something, look at it as an opportunity to rebalance your portfolio, if possible, back towards achieving your long term goals. Think of selling some gold that rallied in anticipation and buy some consumer sensitive equities that sold off in anticipation.
But more likely, rebalance some of the exposures such as emerging markets that might have underperformed in anticipation, and reduce some of the safe haven (strong U.S. dollar).
For the U.S., the impact of 9/11 was much more meaningful, as the war hit U.S. soil. But after the initial shock, weeks, months and years later it had zero impact on markets.
All will know that while there was a technical recession at the time, it was not labelled as a recession until a few years later, and the deflating of the 1990s tech bubble was well underway. If you panicked to sell after the market reopened on Sept. 17, you were losing money two weeks later and underwater for most of the next six months.
It’s hard to isolate how much impact geopolitics have as there are always other factors to consider. In 2022 as Russia invaded Ukraine, the FOMC was embarking on a very aggressive and unprecedented tightening cycle, which likely had much more impact on markets than the war itself.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
