Unpacking the Israel War: How It Impacts the Stock Market

Analysts Notebook joined discussion · Oct 10, 2023 04:01

The stock market initially reacted logically to news of the deadliest attack on Israel in 50 years and the deaths of over 1,000 Palestinians and Israelis: Oil and gold prices increased and stock futures declined slightly, and treasury futures climbed. However, despite the devastating situation, moves in stocks and treasuries were less significant than those following Friday's employment report.

Here's what to know:

Military Related Stocks:

Some stocks rose on the news of the war. Most of beneficial companies have significant military contracts, such as $Lockheed Martin(LMT.US)$ and $RTX Corp(RTX.US)$ — both up over 4% — and $Palantir(PLTR.US)$, which was up nearly 6%.

Source: moomoo

Palantir provides software for security and surveillance purposes, which could experience increased demand during conflict situations where there is heightened focus on monitoring and analyzing security data. Palantir has contracts with various government agencies and defense organizations worldwide, so these entities may require more of Palantir's software for intelligence analysis, data integration, and decision support during such times. Consequently, the uptick in demand for Palantir's services and government contracts could lead to increased revenue and investor confidence.

Fertilizer Stocks:

Fertilizer makers jumped after Hamas' surprise attack on Israel raised concerns over how the conflict could impact global supplies of nutrients used to grow crucial food crops.

Source: moomoo

The Port of Ashdod, a crucial hub for Israel's potash fertilizer exports located north of Gaza, is in emergency mode as the deadly conflict continues, putting up to 3% of global potash supply at risk. If Iran, a significant nitrogen exporter, becomes involved in the conflict, prices of the nutrient needed for grain production could increase due to limited supply and potential premiums in the benchmark Dutch TTF natural gas commodity used to produce nitrogen-based fertilizers. As a result, leading fertilizer companies such as $Nutrien(NTR.US)$, $CF Industries Holdings(CF.US)$, and $The Mosaic(MOS.US)$ experienced an increase in their stock values on Monday.

Oil:

Brent Crude Oil rose to $88.24 a barrel as of the time of this writing. Shares in petroleum companies like $Occidental Petroleum(OXY.US)$ are also up over 4%. The main reason oil prices are rising, even though neither Israel nor Palestine are major oil producers, is because investors think the war could lead to oil sanctions or supply constraints in the Middle East region.

Source: moomoo

Airlines:

A number of airlines have canceled their flights to Tel Aviv, reports Bloomberg. U.S. carriers that have canceled their flights include Delta, United, and American Airlines. Many Asian and European carriers have also paused flights to Tel Aviv. $Delta Air Lines(DAL.US)$, $United Airlines(UAL.US)$, and $American Airlines(AAL.US)$ stocks were down over 4%, most likely due to fears that increasing oil prices will impact the companies' bottom lines.

Source: moomoo

Israel's declaration of war is concerning, particularly since we've grown accustomed to the idea of peace between Israel and its regional neighbors. However, both logic and history suggest that the conflict will remain localized. Although the war may result in some short-term market weakness, traders are expected to shift their focus back to the Fed and interest rates. While tragic in many ways, the war between Hamas and Israel is not a cause for selling stocks.