Experts Share Ways Investors Can Adapt As Middle East Conflict Rages

3 mins read

The Middle East conflict remains front and center for investors, with headlines and news flow driving noteworthy action in stocks, energy markets, precious metals, and more. In this update, three MoneyShow contributors share what they see happening – and how investors can adapt. Be sure to check out what one of the nation’s foremost crude oil, natural gas, and energy products market expert had to say in this week’s MoneyShow MoneyMasters Podcast as well.

Brien Lundin Gold Newsletter

The reason for the rally, of course, was Israel’s forces massing for an invasion of Gaza. No one wanted to be out of the gold market going into the weekend. It was a classic safe-haven event.

So, bad news for the world and, in a typical bittersweet fashion, good news for gold bulls.

Now, while all of us who have portfolios packed with metals and mining shares are happy to see these rising prices, whatever the reason, there is risk ahead. And that’s precisely because of the reason for this rally.

As experienced investors in the sector know well, gold typically spikes on these kinds of geopolitical events, only to fall right back down (or lower) once things calm down.

But as I noted recently, there is a chance that this time is different. The Federal Reserve’s rate-hike cycle is either peaking or has already peaked. Chairman Jay Powell & Co. would be happy to have an excuse to lay off further hikes, or even pivot.

And this crisis in the Mideast, which is very likely to escalate and expand, could be just the excuse they need. In short, if this geopolitical event forces a shift in monetary policy, it will provide the fuel to take this rally in the metals far, far higher.

That’s the bottom line: With so much at stake in the weeks just ahead…with such great opportunities accompanied by such massive risk…we have to prepare for any scenario.

Sam Stovall CFRA Research

Since WWII, selected military shocks resulted in average declines for the S&P 500 one, seven, and 30 days after the event as a result of the initial surprise and uncertainly. Stocks then recovered 60 days and beyond, after realizing that the fallout from most events would be localized.

However, there have been several instances that triggered or exacerbated US recessions and bear markets, such as the Yom Kippur War in 1973 and Iraq’s invasion of Kuwait in 1990. Add to this the concern from recent inflation reports and the Q3 2023 EPS reporting period and one can understand why investors may think stock price gains could stall.

However, in the week through October 12, the S&P 500 was still up 1.0%, along with all sizes, styles, eight of 11 sectors, and 61% of the 153 subindustries in the S&P 1500. Since 1990, the S&P 500 treaded water during the first 30 days following 12 selected shocks, gaining an average of 0.4%, and accompanied by gains for all sizes, styles, and five of 11 sectors.

Not surprisingly, the energy sector posted the weakest average 30-day performance due to the potential disruption of global oil supplies. Conversely, technology held up best, possibly reflecting companies’ and countries’ ongoing desire to improve their preparedness.

On a subindustry level, a slight majority of groups went on to post advances, with a cross section of areas being embraced, while airlines, hotels, and oil were shunned.

Paul Dykewicz

An international energy company with assets mainly in the United States, the Middle East, and North Africa, OXY is one of the largest US-based oil and gas producers. It has operations in the Permian and DJ basins, and offshore in the Gulf of Mexico.

Occidental Petroleum’s midstream and marketing segment provides flow assurance and maximizes the value of its oil and gas. The company’s chemical subsidiary, OxyChem, manufactures the building blocks for life-enhancing products, while its Oxy Low Carbon Ventures subsidiary is advancing technologies and business solutions to economically grow its business while reducing emissions.

As part of its green energy outreach, Occidental Petroleum seeks to advance a reduced-carbon world. BofA’s price objective of $82 per share for OXY assumes $80 Brent and $75 WTI long-term crude prices, which are below current levels. BofA also is assuming long-term Henry Hub natural gas prices of around $4.25.

Risks to reaching that price objective are reductions in prices and margins for oil and gas, significant delays to new upstream projects critical to OXY’s production targets, and any cost pressures from operating expenses, capital expenditures and taxation, BofA wrote.

Recommended Action: Buy OXY.

Phil Flynn Price Futures Group

Phil Flynn is Senior Energy Analyst for the PRICE Futures Group and Fox Business Network. In this interview, he explains why global oil supplies are “tighter than they’ve been probably in my lifetime” and how “there’s a huge risk that if things go wrong in the Middle East, [energy prices] could go a LOT higher.”

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