Daily Commentary

MarketMinder’s View: We found this analysis mixed overall, because it presumes the scale of conflict in the Middle East—far larger between Israel, Hamas, Hezbollah and Israel than in 2006—should have a one-to-one relationship with the market’s reaction. It suggests this is because the grizzled veterans of past oil crises are gone, leaving little institutional memory of major supply disruptions over the past couple decades. So traders are more sanguine. But hold on. What about 2022? Russia, a much bigger producer than Iran, went to war and prices spiked. Furthermore, the Arab Spring this article touches on saw disruption across much of the Middle East and attendant price reactions in the 2010s. We don’t buy this theory at all. Markets are efficient, and what they likely see is that the limited conflict currently ongoing isn’t a material threat to oil markets. And stocks likely rationally see extrapolating fears of widening disruptions in 2022 and the 2010s was dead wrong—as were fears in the 2006 episode. Also, some of the earlier “crises” like the Iraq War and Iran-Iraq War are easy to overstate. That said, the article then provides several sensible reasons why the market reaction hasn’t been so drastic, including America’s ascent as the world’s largest oil producer, Western nations’ coordination to ensure steady global supply and oil-producing nations’ ability to recover more quickly from interruptions. One other compelling reason: “commercial satellite photographs that allow traders to observe in near real-time what’s happening instead of guessing. Satellites have also improved the tracking of tankers departing ports. Simply put, the oil market can trade more on information, despite imperfections, and less on rumor.” Yep: Markets are efficient discounters of widely known information, and the global economy’s increased interconnectedness allows investors to pre-price in what looks likely—and move on. We don’t dismiss the possibility of more short-term volatility (for any or no reason), but markets are sadly familiar with regional conflict, especially in the Middle East. For war to have a lasting, material effect, it must erupt from a local conflict to a global one—and that doesn’t look probable at the moment. For more, see this week’s commentary, “Why Oil’s Spike Isn’t a Dagger to Global Stocks.”

MarketMinder’s View: Please note MarketMinder is nonpartisan and prefers no politician or political party over another. We also don’t make individual security recommendations, and the mentions of specific companies here are coincident to a broader theme we wish to highlight: Unknowns tend to be high early in presidential election years, but uncertainty falls the closer we get to November—allowing businesses to plan accordingly. To illustrate that first point, “Action is currency on Wall Street — where investment bankers collect fees at the completion of transactions — and this is turning out to be a particularly insipid stretch. In the first nine months of 2024, $558 billion worth of corporate deals were completed, the lowest total since 2003, according to the data provider Dealogic.” Now, presidential politics aren’t the sole reason for the slowdown in dealmaking—economic uncertainty, lingering dour sentiment and higher interest rates have likely played a part, too—but legislative and regulatory unknowns do influence companies’ decisions. The article notes how two financial institutions are trying to complete a merger before the end of the year while two oil companies are “slow-walk[ing] their transaction until after the inauguration”—ostensibly hoping for an administration “friendlier toward oil interests.” Now, we don’t know who the next president will be (let alone Congress, which matters more when it comes to new legislation), but come November 5, markets will receive clarity. That falling uncertainty alone is likely to be a tailwind for markets to close out the year, as all the reporting in here suggests.

MarketMinder’s View: China’s Golden Week holiday ended on Monday, and both public and private outfits are reporting on the associated economic activity. The results are mixed depending on the outlet. On the dour side, “Goldman Sachs economists wrote in a Tuesday research note that tourism revenue per person was 2.1% below the pre-pandemic level … [They] added that anecdotal evidence indicates hotel prices and airfares during the holiday were lower than year-ago levels.” More positively, “There were some bright spots. According to official data, cross-border travel rose by about 26% to 13 million trips, compared with last year’s holiday period. International flights grew 42% compared with a low base from 2023, according to Citi.” That said, moods lean more toward skepticism about Chinese domestic demand, and this article suggests policymakers must do more (through fiscal stimulus) to boost flagging consumer confidence. That take is consistent with many we have seen in recent weeks, but it overrates the benefits of stimulus—and we don’t think the world’s second-largest economy is in dire need of government help. Despite high-profile economic soft patches, Chinese growth is still plodding along. For investors, the Middle Kingdom’s economy may not be expanding at sizzling rates anymore, but its still-sizable contributions to global GDP are likely enough to exceed expectations of an economic “hard landing,” and should still be a tailwind for overseas firms. For more, see our September commentary, “China’s Latest Policy Push in Perspective.”