Iran-Israel Conflict: Is this the End of Stock Market Rally?
Equity markets around the world have pulled back sharply since tensions in the Middle-east started to escalate after Israel assassinated Hassan Nasrallah, the dreaded leader of Iran-backed terrorist group Hezbollah on 27-Sept-2024, and Iran retaliating with missile strikes on Israel on the night of 1-Oct-24. The NIFTY-50 Index in India, after hitting an all-time high on 26-Sept-24, has so far corrected by almost 5% over the last one week.
Does this pull-back in equity markets mark the end of the strong bull-run that has been at play for a while now? Or is this something that is likely to resolve itself within a few days and weeks, post which equity markets are likely to resume their march to new highs? The answer potentially lies in another geopolitical upheaval that started two years back – the Russia – Ukraine War! The two conflicts have striking similarities in terms of potential impact on equity and asset markets. To begin with, both conflicts have had or is having an outsized impact on global energy prices. And to that extent, it could be instructive to look at the impact the Russia – Ukraine War had on equity markets, if one has to gauge the potential impact of latest bout of escalation in tensions in the Middle East on equity markets. Turns out that the NIFTY corrected by almost 5% on the day the Russian invasion of Ukraine started on 24-Feb-22. The NIFTY continued to slide for four more months and eventually made a bottom in Jun-22. But by then, the NIFTY had corrected by over 10% since the start of the invasion. While history doesn’t necessarily repeat, it surely does rhyme. And to that extent, the 10% slide in equity markets in the aftermath of the start of hostilities between Russia and Ukraine can surely serve as an useful reference, when it comes to gauging the potential impact of on-going tensions in the Middle East on equity markets.
More importantly, once the dust settles on this conflict, it would very likely become apparent that the key factors that typically drive an equity market rally during the course of a rate-cut cycle are very much intact, and that in turn could well take us back to a raging-bull environment by as soon as Christmas of 2024. In fact, equity markets, by then would have the added advantage of clarity about the outcome of US elections and the policy priorities of the presumptive winner – something that can only add to the overall bullish sentiment.
However, none of this means that we are will be out of the woods soon and that a bull-run in equity markets can persist for a long time to come. In fact, the possibility of the US economy eventually slipping into a recession, and in turn triggering a large stock market correction continues to grow with every passing week and month. And hence, the risk of very high volatility in equity markets continues to persist, even if the on-going tensions in the Middle East get resolved soon.
And that is why, there has never been a time when a time-tested and analytically rigorous rules based approach was more critical, because only a rules-based approach can help navigate the on-going and upcoming turbulence in equity markets without getting caught up in the clutter and noise generated by day-to-day news-flows and day-to-day wild swings in markets. And this is precisely what we try to bring to table for our clients through our proprietary AlphaSIP Strategy®
Do watch the full video on” Does the Iran – Israel Conflict Spell The End Of Rally In Equity Markets? NIFTY-50 Crash”
