Impact of Middle East Wars
Historically, Middle East conflicts create short-term market volatility but rarely cause prolonged equity declines unless they trigger an oil shock or inflation spike.
Across post-WWII geopolitical events:
- Average equity decline: ~6%
- Average recovery time: ~28 days
- Market volatility typically lasts 2–6 weeks
- Longer wars affect the economy primarily through energy prices and interest rates, not the military conflict itself.
Will there be another interest rate rise this week?
As you can see from the chart below the market is now pricing in a 71% chance of an increase to interest rates this week.
So is the share market now cheap or expensive?
Even with the recent retracement global share markets continue to be expensive, based on the Price to Earnings (P/E) ratio.
In summary the prudent strategy is to hold an underweight to growth assets with overweight to cash during this time of heightened geopolitical risk and expensive global share markets. If global share markets fall circa 10% - 15% invest excess cash. This will be triggered by continued oil supply shocks and the impact that has on inflation and interest rates.
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