The recent geopolitical turmoil caused strong volatility in the markets. The shares retreated sharply, losing the six-month profits, while the oil was launched. Oddly, gold retreated up to $1,000 from the historically high, as investors sold to take advantage of stock opportunities. The dollar was strengthened, confirming its position as a global safe haven. Markets treat the crisis as temporary turmoil, without affecting the fundamentals of the American economy, with artificial intelligence remaining a key development lever.
Analyticalally:
The last month brought great volatility to markets. Oil was launched, stocks and bonds sold out. But we can draw many useful conclusions about the situation of the American economy and the financial markets.
In the stock market, we saw a wide drop. Profits over the last six months have evaporated in a few days. Was that sale absurd? Shares began the year in overpriced conditions. A correction and a pause in the rally was legitimate. Investors largely sold profitable positions, and were given an opportunity to redistribute their portfolios. Such conditions «creative destruction» are necessary for the healthy functioning of markets. Based on the latest developments in the Middle East, with the truce, markets reach close to the high they had before the war.
Especially interesting was the move on gold. Thinking logically, one would say that a geopolitical turmoil would bring precious metal to new record prices. What happened was the opposite. He came to lose up to 1,000$ from his historical high. In fact, gold has become the new safe haven. Due to the extremely high state debts in economies, investors no longer perceive government bonds as the predominantly safe shelters. Gold is like a spring port, with high liquidity and zero risk. In the context of instability created, investors sold their positions in gold to take advantage of market opportunities in the stock market. In a way, the price of precious metal was as if it had already discounted the upcoming instability.
Summarizing and looking at the big picture, the geopolitical turmoil of recent weeks has created some precedents. We found out the stock support point. That's their lowest point. While the importance of gold was now consolidated as a safe haven, in order to be used in emergency cases for liquidity extraction. Another comment concerns foreign exchange markets. The dollar has once again proved its value as the global safe haven. With the start of operations in the Middle East, investors turned massively to the dollar for security. So the rumors of depreciation have once again been refuted.
What does the oil market tell us? If one sees future contracts for both international Brent and American WTI, one sees that December prices are almost unchanged at the beginning of the year. So the story that this market is telling is that the possible complications in the supply chains associated with the Persian Gulf will have been resolved in a relatively short time. Nevertheless, if recent increases in black gold are consolidated, then there is a risk of increasing inflation more widely in the economy. It is important to highlight the US position in the oil market. With productive surplus and export power, the US benefits from high prices.
In conclusion, focusing on markets, we realise that the current geopolitical situation is treated as a brief turmoil that does not harm the fundamental sizes of the American economy. AI continues to have a dominant position, as a key development lever. Oil turbulence is seen as temporary rather than structural. The recent sale was more a cause for portfolio redistribution and investor repositioning than a question of valuations. The future cannot be predicted, but the data show that the economy is based on strong pillars without showing signs of cracks.
* Elias Arvanitakis is an Economist – Analyst, Morgan Stanley
