Macro

Middle East Tensions Stir Stocks, Oil Could Spike

Escalating Middle East tensions stir market fears, potentially impacting oil prices and offering sector-specific investment opportunities.

By Barry Stearns

4/17, 00:47 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Corning Incorporated
Halliburton Company
Honeywell International Inc.
Marathon Petroleum Corporation
Phillips 66
Rockwell Automation, Inc.
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Key Takeaway

  • Stock market concerns grow over Middle East conflict, with potential for oil price spikes and negative stock impacts.
  • WTI crude stable at $85, but geopolitical tensions could drive prices higher, affecting global supply and demand.
  • Rising oil prices may pressure inflation and influence the Fed's interest rate decisions, potentially hampering stock market growth.

Geopolitical Tensions Stir Market Uncertainty

The stock market has shown signs of concern regarding the escalating conflict in the Middle East, particularly between Iran and Israel. Despite the relatively stable price of West Texas Intermediate crude oil, hovering around $85 a barrel, the potential for a broader conflict threatens to disrupt oil production and shipments, which could lead to a spike in oil prices. The situation is compounded by Iran's recent attack on Israel, a response to a suspected Israeli strike, raising fears of further military actions that could escalate tensions and impact global oil supply and prices.

Oil Prices and Market Implications

While the current market for West Texas Intermediate crude oil remains calm, with prices showing a modest increase from a multimonth low reached in early December, the underlying risk of a significant price surge looms. The oil market's stability, indicated by its maintenance above the 20-day moving average and a steady 200-day moving average, suggests a longer-term uptrend in anticipation of healthy demand. However, any negative military developments could trigger a sharp increase in oil prices, posing an inflationary threat to the global economy and complicating the Federal Reserve's interest rate decisions.

Sector Opportunities Amidst Volatility

Despite the market volatility and geopolitical risks, some analysts see potential opportunities in specific sectors. The demand for artificial intelligence, for example, is expected to remain robust, offering investment prospects in companies like Corning, Honeywell, and Rockwell Automation. Additionally, energy stocks may present attractive opportunities due to the potential for further increases in crude prices, with analysts recommending energy services stocks like Halliburton, Phillips 66, and Marathon Petroleum. Defense and cybersecurity companies could also benefit from the ongoing conflict.

Street Views

  • Tom Essaye, Sevens Report (Bullish on oil prices):

    "The acts of war by Iran, an OPEC member and major global oil producer, brings the geopolitical seriousness of the conflict/emerging war to the next level and should send oil prices meaningfully higher near term as traders assess the developments overseas and the impact they will have on oil supply and demand dynamics."