It has become fashionable to insert into public discussion a phrase that usually begins with “some (many) people think…” In that vein, I note that “some people think the US and Israeli stock markets have already baked in their verdict of the complex crisis unfolding in the Middle East…and that is that it is great for both of those economies.” The respected stock watcher, Ed Yardeni of Yardeni Research, notes today that both Tel Aviv and New York indices are near all-time highs, and Yardeni predicts, heading higher. In fact, Yardeni notes that counter-intuitively, even oil futures have been untroubled by what normally would be a cataclysmic shock to those markets, partly because due to increased US fracking produced oil capacity, Gulf oil is less essential than it used to be. All this needs to be taken with several grains of salt of course; one opinion does not a fact create. On the other hand, it is undeniable that both the US and Israeli equities markets (unlike the important bond markets about which more below), do seem to indicate that the cumulative voice of millions of investors (and/or their automated, algorithm-driven trader bots), view the current chaos as “good for the market.”
What is to be concluded from this? Since no one knows the real answer there is an opening for pundits to pun. One explanation may be the obvious one which is that indeed, might makes right. Both the US and Israel, the former a global superpower and the latter a local superpower, have had their reputations badly tarnished recently. The US has not had a substantial military victory anywhere in decades. In fact, the most recent quasi military US move – the withdrawal from Afghanistan, was a cringeworthy televised event. Similarly, the mythical Israel “David vs Goliath” superpower suffered its worst-in-history failure on October 7, 2024. Both countries thus desperately needed a big win to re-assert their street cred. Arguably, that is what recent events – crystalized in Iran – provide. And the market likes that. Both countries have formidable “military-industrial complexes” which will also be re-assured by these successes. In the case of the US, given Boeing’s severely damaged reputation this will be an especially useful boost to the sector (note: the B-2 bomber is a Northrop, not Boeing, product, NASDAQ-NOC +3% on June 20, before the strikes).
The bond market tells an important, but different complementary story. “Some (many) people think….” that the bond market more closely tracks the political landscape. If so, rising yields and falling bond ratings may show that investors have recognized the disfunction in the US governance system; specifically, the inability of the US Government to manage its money. Government deficits seem to increase under both parties’ control, though more per term of Republican administrations. The result is thus increasing costs of borrowing by the biggest player in any economy: the government.
Since biblical times, war has been good for the economy (viz, the wealthy who control it; not so much for the soldiers who die in them). It has also been the single most reliable way to quickly garner favor with the public since perversely, even though it tends to increase the death rate of the common man, nationalism and patriotism seem to be positively correlated with field deaths (viz. Russia which has had 1 million deaths in the Ukraine Special Operation, still reports wide support for Putin’s Government). The same groundswell of support is likely in both Israel and the US because of the Iran Special Operation.
In sum, it sadly turns out that the old tee-shirt often worn by now-aging baby boomers (like me), “War is not good for children and other living things” needs an asterisk that says *however, it is GREAT for the stock market!
Sources
https://www.schwab.com/learn/story/fixed-income-outlook
https://www.investopedia.com/democrats-vs-republicans-who-had-more-national-debt-8738104
Right now, I withhold all judgment. And pray.
Sad but true!