Risk Management, Trading & Portfolio Strategies

Syria and the U.S. stock market

A Syrian invasion could have a devastating impact on the global economy.

A Syrian invasion could have a devastating impact on the global economy.

The Obama administration, with consultation from its key military allies, is reviewing plans for a limited intervention into the two-year-old civil war raging in Syria. While it remains to be seen if the United States will indeed attack the Middle Eastern nation, stock markets are already responding to the possibility of another protracted ground war. So far, the feedback from stock and bond investors seems to be overwhelmingly negative.

Since the president first began stating publicly that a military option was very much still on the table, many of the jitters could be seen in the oil markets. As a conflict in Syria could very easily involve Iran – bringing with it a shutdown of the Strait of Hormuz and crippling oil transport to the Western Hemisphere – investors in oil are naturally scared at the prospect. On the other hand, it does present an opportunity to those who might seek to profit from more limited oil supplies.

According to The New York Times, the S&P 500 fell 0.2 percent on Friday, August 30, as Secretary of State John Kerry spoke about the evidence the Obama administration is using to prove Assad's involvement in a nerve gas attack that has left at least 1,000 people dead. This followed closely with developments from the past few days, as buzz surrounding a potential attack first began to build.

Yet two setbacks – one expected, one not – have called into question the U.S. government's ability to wage a legal intervention. First, Russia and China successfully blocked a resolution from the U.N. Security Council that would have sanctioned a military escalation. This prevented the United States from making the case that international support was on their side. While there are still options available, a more unilateral approach risks drawing the United States into a conflict from which they can't readily extricate themselves.

The more pressing issue is the fact that the United Kingdom has, by will of the British Parliament, declined to participate. An effort by Tory Prime Minister David Cameron to pressure MPs into voting for a military incursion failed. As a result, the United Kingdom will only be able to play a supporting role, if any, in the looming attack. France, the other major U.S. ally in the operation, has pledged full support, yet this could be fleeting as French President Francois Hollande has sworn to involve his country's legislature in the process. It remains to be seen how successful he will be in shaping the debate once it begins.

Where does this leave the U.S. stock market? Fears over the invasion could continue to put downward pressure on stock prices. On the other hand, certain industries – namely those involved in defense contracting and paramilitary armed services – could benefit from a Syrian intervention.

More pressing is the macroeconomic impact of heightened oil prices. With the cost of a barrel hovering over $110, economies like the United States that are heavily dependent on fuel-based transportation could suffer accordingly. This, in turn, would have a degrading effect on U.S. businesses and consumers, potentially hurting retailers as the fall begins.

The next few days will show whether or not the U.S. government is serious about its plans to intervene in the Syrian civil war. If it does, all bets are off as to how Syria's allies respond and how stock market participants react. The best course of action for investors trading on the stock market to use the portfolio tools from SmartStops to stay informed about sudden volatility. Given the fast-paced nature of our stock market, SmartStops are a prudent and effective solution to surging risk factors. Click here to learn more about how our service works. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s