A month ago most people couldn’t find Syria on a map. As we start September, tensions in the country are dominating the headlines and holding sway over the stock market.
August ended with the threat of an imminent military strike by the United States against Syria in response to its use of chemical weapons against its own citizens. However, we enter September with President Barack Obama shifting the decision of U.S. action over to Congress.
Investors seemed relieved by the delay in any military action as Congress begins hearings and votes on the issue, postponing action for days, if not weeks. Stock trading moved higher Tuesday as a result.
“Even though the rebellion in Syria started more than two years ago, and many are willing to quickly dismiss the fallout from a targeted U.S. attack, the response by Syria’s neighbors, as well as China and Russia, pose increased uncertainty,” said Sam Stovall, chief equity strategist at S&P Capital IQ.
Uncertainty, of course, it what weighs on the markets. But, Stovall says over the past 70 years there have been many unanticipated shocks the financial markets have been able to absorb, including “wars and near wars, assassinations and attempts, terrorist attacks, and financial collapses.”
The Syrian situation was a major contributor to the 4.5 percent drop in the Dow Jones industrial average in August, the biggest monthly decline since May 2012. However, through the first eight months of 2013 the Dow is still up an impressive 13 percent.
“Should history repeat itself, and there is no guarantee it will, unanticipated events that occur within bull markets that throw markets for a loop are typically assessed for their economic impact in short order, allowing opportunistic traders to step in and quickly push share prices back to break-even and beyond,” said Stovall.
However, the bigger threat to the economy and financial markets could be the impact of the situation in Syria on oil prices.
“Syria is not a major exporter of oil. However, 17 percent of global oil supply flows through the Straits of Hormuz. Will Iran mine this critical waterway should the U.S. strike? Iran is a gasoline importer, so why would they block the Strait?” asked Alec Young, global equity Strategist at S&P Capital IQ.
For investors, Syria may prove to be just another foreign country where uncertainty rattles the U.S. financial markets. It wasn’t that long ago the economy here was sickened by the unhealthy economies in Greece, Italy, Spain, Portugal and even China.
Instead, investors might be advised to watch what is going on in their own backyard. Liz Ann Sonders, chief investment strategist at Charles Schwab, said the rollout of the Affordable Care Act has the potential to upset the investment apple cart.
“Members of Congress may try to tie the ACA to the negotiations over the increase to the debt ceiling. It appears we’ll still be waiting for a deal as we head into the week before the October deadline, which will mean more uncertainty for investors and likely more volatility for the market,” Sonders said.
Bottom line, if it’s not one thing it’s another. Investors have to decide whether or not they can tolerate the ups and downs on Wall Street caused by matters totally outside the financial world. No one ever said it would be easy.