For much of 2014, equities advanced despite disturbing world news headlines. However, that changed last week because there is a clear link between the events in Iraq and the global economy: energy prices. Russ explains, noting two investing implications of an energy price spike.
For much of 2014, equities advanced despite disturbing world news headlines. However, that changed last week, as U.S. stocks slipped amid news of the escalating violence in Iraq.
Market Realist – All three major indices—the S&P500, Dow Jones, and NASDAQ—fell 0.7%–0.8%. It took over a week for stocks to bounce back up after headlines calmed investor fears.
Why the different stock market reaction? The events in Iraq pose a greater risk for markets than earlier 2014 geopolitical turmoil because there is a clear link between the conflict in Iraq and the global economy: energy prices.
As I write in my new weekly commentary, oil prices spiked last week as sectarian violence escalated in Iraq, a country producing more than 3 million barrels of oil per day, at a time when production has already been falling in many other parts of the Middle East, neutralizing the benefit of surging North American oil production. West Texas Intermediate (WTI), the U.S. oil benchmark, traded above $107 per barrel, while Brent Crude, the global benchmark, hit approximately $114 per barrel.
Market Realist – Note that despite the normalization in the equities market, oil prices have remained elevated since the crisis in Iraq hit the news. Prolonged higher oil prices can affect corporate profitability and have a direct impact on equity markets.
Read on to learn about the implications of a prolonged spike in oil prices. To learn about the impact the Iraq crisis is having on U.S. markets, read Key macro implications of the Iraq turmoil for US investments.