Kerry Comments on Syria; Oil Prices Increase

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Market Digest – Week Ending 8/30

On Monday, Secretary of State of John Kerry issued a speech regarding Syria and the use of chemical weapons. His strong words sparked fears the US was preparing an attack, sending global stocks lower the following day and for the week. US bonds increased as investors fled to safety, and oil prices were up on the possibility of a broader Middle East conflict.

Weekly Returns:

S&P 500: 1,633 (-1.9%)

FTSE All-World ex-US: (-3.1%)

US 10 Year Treasury Yield: 2.78% (-0.03%)

Gold: $1,393 (+0.1%)

USD/EUR: $1.322 (-1.2%)

Major Events:

  • Monday – US durable goods orders fell more than expected on weaker civilian aircraft demand and lower business spending.
  • Monday – John Kerry gave a forceful speech regarding the possible use of chemical weapons in Syria.
  • Tuesday – The US and its allies met to discuss military responses to the attacks in Syria.
  • Wednesday – President Obama spoke at a rally marking the 50th anniversary of Martin Luther King Jr.’s ‘I Have a Dream’ speech.
  • Wednesday – US pending home sales fell more than expected in July.
  • Thursday – US second quarter GDP was revised to 2.5% on higher exports and business investment. This was up from 1.1% growth in the first quarter and the previous 1.7% estimate for the second.
  • Thursday – Reports surfaced that Verizon is in talks to buy Vodafone’s 45% stake in Verizon Wireless—an estimated $130 billion deal and possibly the second largest on record.
  • Friday – Secretary of State John Kerry gave another blunt speech, laying out evidence of the chemical attack in Syria and potential US response.

Our Take:

At just over two years old, the Syrian civil war has claimed over 100,000 lives. By comparison, the death toll over the entire ten year war in Iraq is estimated between 100,000 and 200,000, according to multiple third party organizations (although figures vary wildly). Needless to say, the conflict in Syria has been a violent one. But it took a dramatic turn for the worse last week when evidence emerged of a possible chemical weapons attack by President Bashar al-Assad’s regime. This single attack killed over 1000 people, including hundreds of children. And the involvement of chemical weapons thrust the incident onto the world stage.

The United Nations is still investigating the site, and has yet to issue an official conclusion as to whether chemical weapons were used. But few Western nations doubt the evidence. Secretary of State John Kerry said as much in his statements on Monday and again on Friday. These comments sent stocks downward on fears the US would attack. And to be sure, an attack is entirely possible, with or without international support.

The real question is whether an attack would ignite a broader regional conflict. While possible, we view this unlikely. Such an attack would be on a small scale and surgical in nature, hitting strategic government targets. And despite tough rhetoric from the Syrian government and Iran, the reality is that Israel already conducted multiple airstrikes this year with little to no retaliation from either. So if the same pattern holds true, the long term impact to capital markets should be minimal.

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.

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