Historically, it is the “spark” of the older ones and seems to confirm the rule.
Uncertainty regarding the duration of military operations, combined with upward pressures on energy prices ( and ) is currently the main factor affecting stock market movements, limiting both risk and appetite.
Bank of America: The ‘déjà vu’ of 2008 and the doubling of rates
Some international analysts, such as Bank of America, express concern that the sharp rise in international oil prices may create a scene in the markets reminiscent of the period before the global financial crisis of 2008.
Then the price of oil doubled to $140 a barrel by August 2008, from $70 in July 2007, which coincided with the start of the tremors of the subprime crisis that eventually brought down banks like Bear Stearns.
The war in Iran that broke out on Feb. 28 has already pushed oil prices up more than 60 percent this year, reaching as high as $120, while Wall Street returns resemble the price behavior seen from mid-2007 to mid-2008, Bank of America said.
The markets, yes, have entered conditions of increased volatility, simultaneously strengthening the overall systemic risk, but they are far from the scene of 2008.
JP Morgan & Goldman Sachs: S&P 500 on the edge of a “Bear Market”.
At the same time, international houses, such as JP Morgan and Goldman Sachs, are warning of a possible drop in the global reference index, S&P 500, to the limits of the “bear market”.
JP Morgan is warning of a possible fall of up to 15% in the S&P 500 due to the knock-on effect that a sharp rise in oil prices could cause, as a new energy shock could set off a “domino” of economic pressures that will eventually hit equity markets hard.
A severe oil crisis could plunge the S&P 500 by 19%, according to Goldman Sachs.
However, the S&P 500 is only down 3.96% (Thursday close) so far this year and about 5% from its all-time high, and is still far from a bear market (-20% or more).
Oil in Wartime: Record and Reality
Oil prices have skyrocketed since the start of the war. However, they remain below the highest level seen since Russia invaded Ukraine in 2022. The Russian invasion had lifted the price to $139.13, the highest level since 2008, when it had soared to an all-time high of $147.50.
But markets are not yet discounting a 2022-style outcome, when Brent was above $100/barrel for about five months, well below the 2008 record high.
Also, unlike the oil shocks of both 2022 and the 1970s, inflation is generally around target.
At least, for now, we are not yet reaching the historic limits that have accompanied significant risk-off movements in previous oil crises. We have yet to see an aggressive turn from central banks. And given how early it is, we haven’t yet seen any obvious signs of worsening economic data.
Morgan Stanley: ‘Make Shopping Lists’
For its part, Morgan Stanley expresses the view that investors should prepare their “shopping lists” in anticipation of the resumption of the bull market later this year.
He estimates that in six months, things will likely have calmed down after that initial spike, just as they did after Russia’s invasion of Ukraine. Importantly, he stresses, the sharp rise in oil prices is the result of a logistical deadlock in the Straits of Hormuz and not a lack of supply.
According to Morgan Stanley, stocks typically hit lows a few days after oil prices peak.
The “golden” saying of markets
BlackRock is focusing on the risk of a stagflation shock, but it is not a given, as market pricing suggests.
Many times, “markets climb the wall of uncertainty”, a classic stock saying, which has been confirmed several times in the past and may be confirmed this time as well.
Stock market history shows that markets tend to discount uncertainty before the fact and recover before conflicts are over.
Goldman Sachs points out something like this: Most geopolitical shocks in recent years have not had a long-term impact on the stock markets. The correction will be a relatively low risk buying opportunity.
