Will the War In Israel Affect The Stock Market?

The conflict between Israel and Palestine is decades, or even centuries, in the making depending on how you measure it but what made the most recent eruption of violence so shocking was the element of surprise as well as the broad impact. In addition, the indiscriminate targeting of civilians, particularly women, children and the elderly received broad condemnation.

Our area of focus isn’t politics, however, so we’re not going to delve into the tensions on either side, but rather stay in our lane and focus on the economic fallout for investors, who are naturally concerned what the future will hold?

Will the War Affect Oil Prices?

Speculation is rife about funding sources on both sides, and major allies supporting each side with capital, armaments, and other resources, but fundamentally the conflict remains localized, so far. That means global commerce has not yet been interrupted in any meaningful way from the Israel Palestine conflict.

But there is one significant commodity that is likely to be materially affected, and that is oil. Both Israel and Palestine are near major oil shipping routes, so the potential for serious disruption exists.

Oil prices will almost certainly rise to reflect the possibility of this risk materially impacting global shipping routes, and the world economy, which in turn could be a headwind for the US stock market.

Energy stocks set to benefit from a spike in oil include ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP). 

What Does War Usually Do To The Stock Market?

In addition to the oil sector, two other areas are likely to see an inflow of capital following the escalation in the war. The most obvious is the defense sector as demand for military supplies increases to replenish used ammunitions.

Defense stocks that may well see an uptick are Raytheon (NYSE:RTX), Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA).

Another less obvious sector that could attract interest is cybersecurity because the war could generate heightened demand for cybersecurity services. In particular, governments and business will be on higher alert to protect themselves from cyberattacks.

While there are many reasons for this, one report over the weekend speculated that Israeli government websites had been compromised.

If so, this will likely accelerate adoption of services offered by cybersecurity firms, such as Crowdstrike (NASDAQ:CRWD), Palo Alto Networks (NASDAQ:PANW), SentinelOne (NYSE:S) and Cisco (NASDAQ:CSCO).

Among this list, the name that pops out most is Palo Alto Networks because of the high volume spike accompanying a high price spike on October 5th.

3 Sectors To Suffer From Israel Palestine Conflict

While energy stocks, defense sector companies, and cybersecurity firms may benefit from the Israel Palestine conflict, the obvious losers in the stock market are going to be airline stocks, particularly those with exposure to Tel Aviv airport.

From our research, the airlines that have the highest volume of traffic into Tel Aviv are Israel’s primary airline, El Al, in addition to Turkish Airlines, Pegasus Airlines, EasyJet, Ryanair, and British Airways.

Three others tethered to passenger volumes to and from Israel are Lufthansa, Air France, and KLM. Of this group Ryanair (NASDAQ:RYAAY) might be the most accessible to US investors.

Another sector that could feel the brunt of the war is consumer discretionary, particularly if confidence among consumers is hit. 

A prime candidate to suffer would be a company like Nike (NYSE:NKE), which has a global footprint. So too, though, are Disney (NYSE:DIS) and even Home Depot (NYSE:HD) potential candidates.

Lastly, a sector that could well be in the crosshairs is technology for similar reasons. If businesses and consumers are wary about spending freely on technology services and goods, even the most successful tech sector titans like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) could feel the pinch.

Will the War In Israel Affect The Stock Market?

The short answer is that the war in Israel is likely to cause an inflow of capital to defense, energy, and cybersecurity sectors. Airline stocks as well as those in the technology and consumer discretionary sectors are prone to weakness at this time as consumer confidence diminishes.

Perhaps one of the greater concerns for the stock market is the possible domino effect where provocation leads to retaliation, which in turn increases the frequency and magnitude of attacks in the Middle East. The potential for spikes in stock market volatility and reductions in investor confidence are elevated at this time.

It would be natural for consumers to close their pocketbooks or, at the very least, tighten them at this time until a resolution becomes clear. Failing that some kind of peace treaty, a cease-fire would be needed before consumers feel comfortable knowing that this conflict won’t be a magnet for sovereign nations to join the fray, whether that’s Iran, Saudi Arabia, or even the United States of America.

For a first sign that the dark clouds are starting to give way to a brighter future, keep a close eye on the volatility index, which will naturally reflect heightened fear in the market. If sentiment shifts more positive, expect the VIX price to fall to reflect higher complacency.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.