Geopolitics Tanks Some Stock Markets
Geopolitical turmoil is hitting global markets hard — Japan’s Nikkei is down 5%, and South Korea’s KOSPI -6% [https://x.com/i/status/2030994303678587165]. Oil briefly hit $119, causing Dow futures to drop 500+ points, though the US rebounded later with Dow +0.5%, S&P 500 +0.8%, and Nasdaq +1.3% [https://x.com/i/status/2031145830154129723, https://x.com/i/status/2030994303678587165, https://x.com/i/status/2030800047361634736]. One analyst says equities are trading as "oil derivatives" amid stagflation fears [https://x.com/i/status/2031145830154129723].
The Nikkei and KOSPI experienced their worst weekly losses in nearly a year, with the KOSPI plummeting over 10%. This was triggered by escalating conflict in the Middle East disrupting oil supplies via the Strait of Hormuz. The Nikkei concluded the week down 5.5%, while the KOSPI saw a staggering 12% crash on Wednesday before a partial recovery. The conflict's impact on energy has reignited stagflation fears, where slow economic growth combines with persistent inflation. Some analysts estimate that a $15 rise in oil prices could add 1% to inflation in developed economies while reducing global GDP growth by 0.3-0.4%. Concerns center on the Strait of Hormuz, a critical trade route for approximately 20% of global oil and liquefied natural gas supplies. Trump stated the Iran war would end "very soon," causing oil prices to drop sharply from a peak of $119 on Monday. Brent crude is down 6.8% to $92.19 a barrel. Saudi Arabia's Aramco warned of "catastrophic consequences" for oil markets if the Strait of Hormuz disruption continues. Despite the turmoil, history suggests stock markets often recover after geopolitical shocks. Following such events, the S&P 500 has shown a median price return of +2.0% one month after "event ground zero". However, some analysts warn of a potential stock market "meltdown" if stagflation fears intensify.
