Key takeaways
An escalation in global conflicts raises questions about potential economic and market ramifications.
In recent months, the Eastern European war intensified as Ukrainian troops pushed into Russia and Russian forces continued to gain Ukrainian territory.
The conflict between Israel and Hamas appears to be expanding into Lebanon and even Iran, as Israel battles with Hezbollah.
Investors always need to be alert for the possibility that outside events could temporarily overtake fundamental factors and fuel capital market volatility. Geopolitical events have, from time-to-time, affected market performance. Recently, the Russia-Ukraine war, closing in on its third anniversary, has intensified, raising investor concerns. And the battle between Israel and Hamas certainly adds layers of uncertainty to an already complicated geopolitical landscape. In the meantime, the return of Donald Trump to the White House raises questions concerning the new administration’s foreign policy priorities.
Trump has made strong statements about his desire to end the Russia-Ukraine conflict. The terms of such a conclusion are unclear and many speculate he’ll be less supportive of Ukraine’s efforts than was outgoing President Joe Biden. Biden recently approved Ukraine’s use of long-range U.S. missiles in Russian territory. In response, Russian President Vladimir Putin hinted at the increased risk of Russia using tactical nuclear weapons, raising the risk of a widening conflict. In addition, he brought in North Korean troops to assist Russia’s war effort.
At the same time, the Middle East conflagration has become increasingly fraught, with Iran and Israel now exchanging air strikes. Israel’s invasion of the Gaza Strip following the surprise October 7, 2023, attack by Hamas on Israel continues. In recent months, the battle extended into Lebanon, as Israel seeks to take out key leaders of another of its enemies, Hezbollah, and Hezbollah has responded, firing rockets into Israel.
“To this point, agricultural and energy products are still being moved without major limitation, so that’s helping stabilize commodity prices,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management.
Investors are paying more attention to the potential risks of widening geopolitical conflicts, but the greatest concerns are more tied to economically sensitive targets. “A market or economic impact depends very much on how close the conflict gets to production facilities,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “To this point, agricultural and energy products are still being moved without major limitation, so that’s helping stabilize commodity prices.” As a result, major capital market ramifications have not resulted from these international crises.
Oil markets are considered susceptible to current tensions, given their proximity (Middle East, Russia) to major oil production regions. Yet the U.S. has ramped up production, helping on the supply side. “Demand also remains on the low end given slow global economic growth,” says Haworth. Since September, oil prices have held near the $70/barrel range.1
Despite ongoing conflicts on two, oil-sensitive fronts, Haworth notes, "It’s important to remember that compared to other periods, oil prices today are on the low end of the scale.”
Both Russia and Ukraine are major global suppliers of wheat and other agricultural products. This contributed to a temporary spike in agricultural commodity prices in the early weeks following Russia’s invasion of Ukraine in February 2022. Wheat prices, for example, have remained in a much lower trading range since that time.2
Haworth notes that given the duration of the Russia-Ukraine conflict, commodity markets have generally adjusted to changing conditions. “The only durable negative impact has been on German chemical companies, which are suffering due to the lack of cheap natural gas.”
Europe is likely to feel more impact than is the case domestically. “In the U.S., we’re a bit more insulated from the economic fallout from the conflicts compared to other parts of the world,” says Tom Hainlin, national investment strategist for U.S. Bank Asset Management.
From an investment perspective, current conflicts have been overshadowed by other underlying market and economic fundamentals. In the past two years, equity markets, in particular, have prospered. With a new presidential administration taking over U.S. leadership, the timing of any changes to U.S. policy as it affects either the Russia-Ukraine or Middle East conflict remain unknown. “Capital markets won’t deal in guesses about what may come,” says Haworth. “They’ll wait for something more concrete.”
Be sure to talk to your financial professional about what steps may be most appropriate for your circumstances.
The most prominent conflicts in the world today are found in two geographic regions. One is Eastern Europe, where Russia and Ukraine have been involved in a war since Russia first attacked Ukraine in February 2022. In late 2024, tensions appeared to escalate, as Ukraine began firing U.S.-made missiles into Russia, and Russia raised the possibility that it would be less reluctant to utilize tactical nuclear weapons. The second, more recent conflict, followed a surprise October 2023 attack by Hamas against Israel. In short order, Israel responded with massive bombardments and by sending ground troops into the Gaza Strip. The war’s reach now appears to be expanding into Lebanon, as Israel seeks to attack a Hezbollah stronghold and Hezbollah has responded with rocket attacks into Israel. Israel and Iran have also been involved in what are, to date, modest conflicts.
To this point, the economic impact of these conflicts has primarily been regional in nature. In the immediate aftermath of Russia’s invasion of Ukraine in early 2022, oil prices soared. That reflected efforts by western nations to place economic sanctions on Russia, which is a major oil supplier. However, that price spike was short-lived. Oil prices rose at the start of the Israeli-Hamas conflict, but haven’t spiked to previous levels, and stabilized in the $70/barrel range since then. While economic circumstances are extremely difficult for countries that are targeted in the current conflicts, the global impact has been muted. The U.S. economy continues to show significant stability despite global conflicts.
Stocks suffered through a bear market in 2022, though much of that was attributed to a changing economic environment. Most notably, the decision by the Federal Reserve to raise short-term interest rates beginning in early 2022 altered the investment landscape. Since late 2022, stocks recovered considerable ground. “The risk of an Israel-Iran conflict does raise greater concerns that Middle East military action could become more widespread,” says Rob Haworth, senior investment strategy director at U.S. Bank Asset Management. However, Haworth notes that the global conflicts currently aren’t having a significant impact on investor sentiment.
What should investors consider when seeking emerging market exposure to the world’s second-largest economy?
Having reached new record highs more than 50 times in 2024, investors wonder if S&P 500 is due for a pullback.
Equal Housing Lender. Deposit products are offered by U.S. Bank National Association. Member FDIC. Mortgage, Home Equity and Credit products are offered by U.S. Bank National Association. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice.
