by Lauren Sigman, CFP® and Dan Arcos, CFA®
October 9, 2023
Summary of the Conflict
Early Saturday, Hamas launched an invasion of Israel. There are reports that Hamas operatives used bulldozers to take down parts of the border barrier between Gaza and Israel, catching the Israeli military by surprise. Hamas also launched rockets at various Israeli cities across the country.
Israel has responded with its own assault on militant targets and a formal declaration of war. This is the most explicit declaration made by an influential world power that we’ve seen over the last two decades (there was no formal declaration between Russia and Ukraine).
As of Monday morning, there are reports of over 1,000 casualties and over 100,000 displaced people because of the fighting. At least 150 Israeli hostages are being held captive in Gaza, which will greatly complicate matters.
On its face, Hamas’ provocation seems irrational and self-destructive as it is simply overpowered by the Israeli Defense Force (IDF). Therefore, it begs the question of what kind of response Hamas aims to receive. The surprise attack underscores an Israeli military intelligence failure, which will certainly stoke political dysfunction, making the response more unpredictable. Israel’s response will affect the course of history. If this conflict is contained among neighboring lands, including Lebanon, we would see more bloodshed but with little impact on the geopolitical landscape. A response that brings in Iran could undermine the diplomatic progress the US and Israel have made with Saudi Arabia. Involving Russia could change the global world order. As of now, the Wall Street Journal is already reporting Iran’s involvement in the invasion, making escalation appear more likely.
The Market Impact
As of mid-day Monday, Oil is trading up due to fears around resulting supply chain disruptions. Equities are near even. Historical data suggests that, over the long-term, markets have been resilient during outbreaks of conflict. This may be explained by the fact that the US economy is less vulnerable to energy price swings, or more cynically, the market has become desensitized after showing an ability to recover from both 9/11 and the Great Financial Crisis. These events may have a positive effect on American politics as it may force the hands of Congressional Republicans to put aside their squabbles and strike a budget deal with Democrats to avert a shutdown.
Should the US sustain economic stress, the US Federal Reserve is able to lower interest rates for growth. Despite the painful journey to the rate levels we have today, this is an option that we are now pleased to have, especially since it was arguably non-existent nearly two years ago.
In 2023, we intentionally managed the portfolios to have a defensive tilt, which we would expect to shield against short-term volatility from events like these. As a firm, we remain vigilant and will closely follow the events unfolding.
We recommend not getting caught up in the headlines, staying invested, and keeping to your financial plan.
If you would like to schedule a meeting with us to discuss these events or your portfolio and financial plan, we are including a link to our Calendly below.
https://calendly.com/team-vail/60-min
Thank you for your continued support,
The Vail Team
Sources: Axios, Investopedia;