War: where the money is and how to profit

NQ100

Key zone: 24,500-25,000

Buy: 25,500(on strong positive fundamentals); target 27,000-27,500; StopLoss 25,000

Sell: 24,300(on a confident breakout of the 24,500 level); target 23,200; StopLoss 25,200

The escalation around Iran has already cost the U.S. stock market about $1 trillion in capitalization. At the same time, the blockade of the Strait of Hormuz is pushing oil toward the psychological mark of $100 per barrel. The military factor is gradually becoming the key driver of global markets and is creating new risks for Federal Reserve policy.

The number of involved parties is increasing, and attacks on energy infrastructure are intensifying. Against this background, the prospects for a Fed rate cut look less obvious: rising energy prices may once again accelerate inflation.

As early as Tuesday, U.S. exchanges opened with a noticeable decline: the Dow Jones Industrial Average was losing about 1%, while the S&P 500 and Nasdaq Composite fell by more than 1.1% amid concerns about disruptions in oil supplies. Today part of the losses has been recovered.

• Military escalation has once again raised the issue of the nuclear threat, however the market is practically ignoring this factor. The logic is simple: if nuclear weapons were actually used, the question of exchange profits would lose meaning, whereas now investors are searching for potential entry points.
• Financial markets are in a state of equilibrium between a mass flight from risky assets and growth in sectors that benefit from the crisis.
• The mass cancellation of flights and the closure of key transport hubs, including Dubai, have practically paralyzed international air traffic.
• The European tourism holding TUI lost about 10% of its capitalization. Shares of Lufthansa and the owner of International Airlines Group (the operator of British Airways) fell by more than 5%. In the U.S., shares of Delta Air Lines, United Airlines and American Airlines lost 2–4%, despite their limited presence in the region.
• Asian airlines were also hit: quotes of Singapore Airlines, Cathay Pacific, Qantas and Japan Airlines fell by more than 4%.
• At the same time, the oil and gas and defense sectors are demonstrating confident growth.
• A particularly difficult situation is forming in the EU: energy “independence” under current conditions effectively means a shortage of resources.
• After QatarEnergy preemptively stopped LNG production due to the threat of strikes, European gas prices jumped by about 25% in just one day. Against this background the STOXX Europe 600 and DAX indices opened with a noticeable decline.

The growth of oil quotations immediately supported shares of energy companies. European giants Shell and BP gained about 5%, while in the U.S. ExxonMobil and Chevron became the favorites. Even Saudi Aramco increased capitalization by about 3%, despite the risks of attacks on key infrastructure, including the Ras Tanura oil terminal.

At the same time investors are actively buying shares of defense corporations, pricing in expectations of new large contracts. Shares of RTX Corporation rose by 5.81%, shares of Lockheed Martin gained 2.81%, and the British BAE Systems managed to rise by 3.40% even against the background of the general decline of European markets.

The high share of energy and defense companies in some indices made them more resilient. The British FTSE 100 lost only about 1%, showing more stable dynamics compared with pan-European indicators.

A real paradox is observed in the Israeli market: the Tel Aviv 35 Index updated its historical maximum, gaining about 5%, and the national currency — the Israeli new shekel — strengthened by about 1.5%.

Against the background of military events, the topic of Trump’s global trade tariffs temporarily moved to the background. Let us recall that the import duties introduced by him up to 15%, after the decision of the U.S. Supreme Court, can remain in force for up to 150 days without approval from Congress.

Geopolitical instability also increases interest in assets located outside the traditional financial system. In this context, investors increasingly consider cryptocurrencies as a relatively “apolitical” class of assets.

And what is the result?

The key trend is obvious: a large-scale redistribution of capital is taking place. Money is leaving cyclical sectors — tourism, the consumer sector, and part of technology companies — and moving into energy and the defense industry.

If this scenario persists, energy corporations will remain the main beneficiaries of the crisis. At the same time airlines, industry and companies oriented toward the end consumer will face rising costs.

This will increase pressure on the S&P 500 and Nasdaq Composite, since rising bond yields and inflation expectations will lead to another revaluation of the value of large companies.

The decisive factor remains the duration of oil supply disruptions. If shipping through the Strait of Hormuz is not restored within 2–3 weeks, oil prices may consolidate above $100. Such a scenario could seriously worsen forecasts of corporate profits both in the United States and in Europe.

So we act wisely and avoid unnecessary risks.

Profits to y’all!