{"id":12977,"date":"2024-01-31T16:28:02","date_gmt":"2024-01-31T16:28:02","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12977"},"modified":"2024-01-31T16:28:05","modified_gmt":"2024-01-31T16:28:05","slug":"how-will-the-red-sea-shipping-attacks-impact-the-global-economy","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/how-will-the-red-sea-shipping-attacks-impact-the-global-economy\/","title":{"rendered":"How Will The Red Sea Shipping Attacks Impact The Global Economy?"},"content":{"rendered":"\n

Ted R. from Philadelphia, PA asks:<\/em> Hello Mitch, I\u2019ve seen you mention before that geopolitical events and risks can have a big impact on the economy and markets. What do you make of the attacks on ships in the Red Sea? With many ships re-routing, should we expect more inflation pressures, and thus higher interest rates? Those both seem like negatives for stocks, to me.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing, Ted, you ask an excellent question. Higher-than-expected inflation \u2013 and thus upward pressure on interest rates \u2013 is a major risk to any forecast for positive stock market performance and an economic soft landing in 2024. So, to the extent that shipping disruptions in the Red Sea can trigger global inflationary pressures, there is certainly cause for concern.<\/p>\n\n\n\n

Let\u2019s frame the issue first, then analyze it.<\/p>\n\n\n\n

In recent weeks, Houthi rebels in Yemen have been attacking commercial shipping vessels in the Red Sea, disrupting the flow of goods through the Suez Canal. The Houthis claim these attacks are aimed at ships with a trade link to Israel, but they seem to be attacking virtually any ship they can. The attacks have caused major ocean carriers like A.P. Moller-Maersk and Germany\u2019s Hapag-Lloyd to re-route ships around South Africa\u2019s Cape of Good Hope, which makes the trip about 30% to 50% longer and can add more than a week to delivery times.1<\/sup><\/p>\n\n\n\n

As you point out in your question, longer trips mean higher costs. According to London-based Drewry Shipping Consultants, the average cost of shipping a 40-foot container more than doubled in January, rising 23% in a single week (ending January 18). And this isn\u2019t just for ships that run between eastern Asia and Europe\u2014the cost of moving a container from China to Los Angeles rose 38% in the same week referenced above.<\/p>\n\n\n\n

How Could Recent Geopolitical Events Impact the Market?<\/a><\/span><\/strong><\/p>\n\n\n\n

During geopolitical events like regional wars, investor sentiment tends to sour, leading to pronounced volatility and short-term pull-backs. However, long, grinding bear markets from wars have been rare, with the last one occurring in 1942 during World War II. Despite numerous geopolitical crises since then, none have caused a bear market. Why is that?<\/p>\n\n\n\n

In our free guide, How Geopolitical Crises Affect the Stock Market2<\/sup><\/a><\/em><\/span><\/strong>, we take a closer look at that question in this guide, as we explore the relationship between geopolitical crises and the stock market, to understand how conflicts have affected the global economy and stocks. You\u2019ll get insight on:<\/p>\n\n\n\n

\u2022 Five significant conflicts since World War II, from Korea to Crimea
\u2022 An analysis of each conflict and its economic impacts
\u2022 U.S. GDP and S&P 500 figures for key periods of these wars
\u2022 Plus, more insights on how these crises affect the economy and market<\/strong><\/p>\n\n\n\n

If you have $500,000 or more to invest, request this report today!<\/p>\n\n\n\n

Download Your Free Guide, How Geopolitical Crises Affect the Stock Market2<\/sup><\/em><\/a><\/span><\/strong><\/p>\n\n\n\n

The inflation link is worth exploring here. If the cost of shipping goods across the world goes up materially, it can apply price pressure to manufacturers, importers, goods sellers, and ultimately, consumers. This is the type of extraneous shock that could keep inflation stubbornly high and put pressure on central banks to keep interest rates high in response. As you say, a negative for stocks.<\/p>\n\n\n\n

This extraneous shock scenario is also what we saw during the pandemic when supply chains were snarled, global shipping costs surged, and inflation followed. In the chart below of the Global Supply Chain Pressure Index, you can see the \u2018pressure spikes\u2019 that became key drivers of inflation.<\/p>\n\n\n\n

The New York Federal Reserve\u2019s Global Supply Chain Pressure Index<\/em><\/strong><\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of New York3<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n

I think it\u2019s important to call out some key differences between what we\u2019re seeing now in the Red Sea, versus the surge in shipping costs experienced in 2021. First, the Suez Canal accounts for just 12% of global trade, which I\u2019m not sure is quite substantial enough to cause global price pressures. Second, it\u2019s important to remember that the pandemic also featured a massive surge in demand for goods, thanks to trillions in stimulus money. Spending is strong globally today, but I don\u2019t think it\u2019s significant enough to cause the same type of mismatch we saw in 2021.<\/p>\n\n\n\n

The U.S. and other allies, including India, have deployed forces to try and restore stability in the Red Sea. Regardless, I think this situation is worth monitoring closely in the months ahead. It\u2019s early, but we did already get one data point signaling that the issue may not be as severe as some fear. Eurozone Manufacturing PMI rose to its highest level in 10 months in January, and average input costs fell sharply. If the Red Sea issue was truly problematic, we\u2019d expect to see input costs rising, not falling.<\/p>\n\n\n\n

To help guide your investing decisions during this time, I am recommending our free guide, How Geopolitical Crises Affect the Stock Market4<\/sup><\/a><\/span><\/em><\/strong>. This guide provides a historical perspective on the effect of regional war on the market and includes:<\/p>\n\n\n\n

\u2022 An overview of five significant conflicts since World War II, from Korea to Crimea
\u2022 An analysis of each conflict and its economic impacts
\u2022 U.S. GDP and S&P 500 figures for key periods of these conflicts<\/p>\n\n\n\n

If you have $500,000 or more to invest, request this report today!<\/p>\n","protected":false},"excerpt":{"rendered":"

Mitch offers insights on the Red Sea Attacks and potential economic impacts <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12977","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12977","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12977"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12977\/revisions"}],"predecessor-version":[{"id":12980,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12977\/revisions\/12980"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12977"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12977"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12977"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}