War Fears

November 10, 2023


  • More than a month after Hamas attacks in Israel, causing over 1,400 casualties, the fighting has intensified, hinting at a regional humanitarian crisis. Despite the severity, the impact on global critical goods supply is expected to be less direct than previous geopolitical events (e.g., Russia's invasion of Ukraine). While concerns of an energy supply shock arise, drawing parallels with historical conflicts, the current oil price increase (+9%) has not been sustained since October 20th. The worst-case scenario involves a broader conflict with Iran, potentially leading to higher yields and inflation; however, in the present situation, we don't anticipate a material impact on global economic growth, inflation, or corporate profits.
  • U.S. retail sales surged beyond expectations (+0.7% MoM), with upward revisions for prior months, Q3 real GDP growth reached an eye-popping 4.9%, fueled by strong consumer spending, but leading labor indicators hint at softening despite a healthy job creation average of 204,000 monthly over the past three months. Overall, the economic outlook remains healthy, with growth slowing but not collapsing.
  • The 10-year Treasury yield peaked at 5.02% in October, reflecting robust economic data, substantial Treasury issuance, and investors demanding compensation for own longer-dated bonds. The Federal Reserve maintained rates at 5.25% - 5.50%, with market expectations of no change in December.
  • This October deviated from the norm, with U.S. and international stocks underperforming, fixed income facing challenges, and gold shining amid geopolitical concerns. Post-October, a dual impact of Powell's dovish tone and weaker-than-expected job data triggered a significant drop in the 10-year Treasury yield from 4.93% to 4.50%, sparking a market rally. The S&P 500 rose by 4.51%, and the U.S. investment-grade bond market climbed 2.68%.

It has now been more than a month since the brutal attacks were conducted by Hamas onto bordering areas in Israel, killing more than 1,400 Israelis.1 Fighting has escalated, and now it seems as if a humanitarian crisis is unfolding in the region.

These are undeniably somber and challenging times. That said, it is our responsibility to focus on potential implications and what it means for our clients’ portfolios. Unlike Russia's invasion of Ukraine, which wreaked havoc on global supplies of energy, fertilizer, and food, the current conflict between Israel and Hamas appears poised to exert a less direct impact on the worldwide supply of critical goods.

An energy supply shock is usually top of mind in this scenario. Drawing parallels between the 1973 Arab-Israeli War and the 1979 Iranian Revolution, embargoes and other disruptions to oil supplies from the Middle East caused prices to spike. In this case, the price of crude oil rose from $83.13 a barrel on October 6th to over $90.89 on October 20th, an increase of over 9%. Surprisingly, as of November 8th, the price of crude oil is below where it was trading before the conflict commenced.2

The worst-case scenario—a widening of the conflict with Iran's involvement and increased U.S. support for Israel—could potentially lead to higher yields and inflation, creating headwinds for businesses and consumers. However, in the present situation, we don't anticipate a material impact on global economic growth, inflation, or corporate profits.


Since the last Fed meeting in September, U.S. retail sales—a widely followed economic gauge of the U.S. consumer—shattered expectations, increasing 0.7% month-over-month. Not only was the current reading red hot, but the prior two month’s readings were revised higher, according to the Commerce Department.

Moreover, real U.S. GDP for the third quarter was announced at the end of the month. It is a closely watched metric, but this quarter it seemed like everyone was watching with bated breath. The reason for the suspense was the Atlanta Fed's GDPNow forecast, which predicted an annualized growth rate of 5.4 percent. While real GDP didn't quite reach that level, it still produced an eye-popping 4.9 percent annualized growth rate, fueled by the strongest pace of consumer spending since 2021.3

The labor market remains healthy, with job creation averaging around 204,000 per month over the past three months.4 On the other hand, leading labor indicators have softened, with the quits rate declining to pre-COVID levels and the unemployment rate edging higher.

Overall, the economic outlook remains healthy, with growth slowing but not collapsing. This is the ideal scenario for the Fed, workers, and market participants, but it is too early to say whether this trend will continue. This is because policy rates have not been restrictive for very long.


The 10-year Treasury yield continued its march higher in October and hit a cycle peak of 5.02% mid-month, its highest level since 2007. Yield increases were greatest for longer maturities, indicative of strong economic data, large Treasury issuance, and investors demanding a premium to own longer-dated bonds.

A rise in yields of this magnitude tightened financial conditions quite considerably, which will ultimately make it harder for consumers to borrow. This was acknowledged by Chairman Jerome Powell during his speech on November 1st. Beyond the emphasis on remaining committed to decreasing inflation to the 2% target, the Federal Reserve kept interest rates at 5.25% - 5.50%.

A pause in interest rate hikes was expected by the market, and as we write this commentary, the Federal Reserve is expected to keep interest rates unchanged during December as well.


September is the worst month on record for U.S. stocks, as we covered in our last market commentary. October, on the other hand, has historically shown positive results 60% of the time with an average return of just 0.24% over the last 100 years.5 Unfortunately, this October failed to live up to its historical average, with stocks in the U.S. and outside the U.S. underperforming and fixed income also faring poorly. Gold was a bright spot, as investors bid up the asset in response to geopolitical developments.

Source: Bloomberg. Nova R Wealth. Data as of October 31, 2023; see important disclosures at the end of this material.

Now, for some good news…

Since the end of October, a powerful one-two punch to lower rates has triggered a rise in all markets, particularly equities.

The first blow came from Fed Chair Jerome Powell's dovish tone in the November press conference. The second came from weaker-than-expected October jobs data, coupled with major negative revisions to prior months' job reports. These combined punches knocked the 10-year Treasury yield from 4.93% at the end of October to a low of 4.50% on November 8th. While this may not seem like a significant move, it was enough to ignite a rally.

During this time frame, the S&P 500 Index rose 4.51% and the U.S. investment grade bond market (Bloomberg US Aggregate Bond Index) climbed 2.68%. As you can see from the chart below, declines in yields have spurred positive investor sentiment for stocks.

As the year winds down, seasonality for stocks may remain supportive, with November and December tending to be some of the better months, especially if the interest rate environment remains constructive. Eyes will stay glued to inflation readings, jobs numbers, and yields, as these will determine the path of interest rates. Once clarity on peak interest rates emerges, we believe volatility in fixed income markets should subside.

  1. Byman, Dan. "Hamas' October 7 Attack: The Tactics, Targets, and Strategy of Terrorists." Center for Strategic and International Studies (CSIS), November 8, 2023. https://www.csis.org/analysis/hamas-october-7-attack-tactics-targets-and-strategy-terrorists
  2. Bloomberg. COA Comdty.
  3. Bureau of Economic Analysis.
  4. Bureau of Labor Statistics. Nova R Wealth. U.S. jobs created is identified as the US Employees on Nonfarm Payrolls Total MoM Net Change SA.
  5. Bespoke Investment Group.

The FTSE Nareit Equity REIT TR Index measures the performance of REIT performance indexes that spans the commercial real estate space across the US economy. It contains all Equity REITs not designated as Timber REITs or Infrastructure REITs. The index is market-capitalisation weighted.

The Bloomberg US Aggregate Bond TR Index measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS.

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The Bloomberg US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Bloomberg EM country definition, are excluded.

Gold is represented by XAU Curncy in Bloomberg. It is the price of 1 XAU in USD Gold.


This presentation is for educational and illustrative purposes only.  It is not intended to offer or deliver investment advice in any way. Past performance is not indicative of future results. The information contained in this presentation has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of such information, and we assume no liability for damages resulting from or arising out of the use of such information.  Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. The performance numbers displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Any index presented does not incur management fees, transaction costs or other expenses associated with investable products. It is not possible to directly invest in an index.

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