After two months of war it seems as if the situation is clear.
After two months of war it seems as if the situation is clear. Certainty has increased.
This is evident in the stock market. The stock market hates uncertainty and loves certainty to no end. Certainty can be terrible – but it is still certainty.
What gave the markets a boost during the war months was also the situation in the markets abroad. In the USA – the continued expectation of a decrease in inflation and a decrease in interest rates, pushed the indices there up and the bond yield down.
The only thing that is not priced with certainty these days in the stock market is a large military campaign in the north. Such a war campaign will affect all the stock exchanges in the world.
Since the State of Israel clearly says that it will not initiate a military campaign in the North until the events in the South are over, the market accepts this as a certain certainty, and even more so – apparently the non-launching of a military campaign by Lebanon (Hezbollah) so far indicates the other side more than us. I’m not afraid.
What is clear from the war is that the economy entered a type of slowdown alongside high government spending and that it will continue to increase, whether by helping the civilian market, maintaining a large reserve force, or by increasing the defense budget of the State of Israel for several years to come.
The financial response to events of this type will be reflected in the expectations of an interest rate cut and, in my opinion, an actual interest rate cut. If not in the next beat – the one after that.
Entering a pattern of falling interest rates will be good for all types of bonds and the longer the MMA (average life span – life time of the bond) – the stronger the reaction to interest rates. The long-term bonds were damaged in 2022 as a result of the sharp increase in interest rates as a result of the war in Europe (Russia and Ukraine) and were also damaged in the first half of 2023 from the maintenance of a rising interest rate when expectations for lower interest rates were constantly pushed aside.
The situation is significantly different today. especially in Israel.
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