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What the Israel-Hamas war means for US markets

2023-10-17 19:21
Growing unrest in the Middle East has cast a shadow on global financial markets.
What the Israel-Hamas war means for US markets

Growing unrest in the Middle East has cast a shadow on global financial markets.

Israeli stocks listed in New York and Tel Aviv have sunk to recent lows, underscoring the growing economic uncertainties in the war-torn region and leaving investors unsure of where markets go from here.

What's happening: For a country about the size of New Jersey, Israel has an outsized influence on the US stock market. More than 100 Israeli companies are listed on US exchanges, with a combined market cap of more than $150 billion -- Israel has the fourth most companies listed on the Nasdaq after the United States, Canada and China.

Funds in the US hold more than $43 billion in Israeli stocks and bonds, according to a Bloomberg tracker.

But conflict between Israel and Hamas has sent stocks tumbling along with the shekel, which has dropped for six days straight to an eight-year low even after the Bank of Israel announced an unprecedented $30 billion program to bolster the currency.

"We anticipate continued volatility in Israeli equities in the coming weeks, especially those companies with heavy exposure to Israel's domestic economy," said Steven Schoenfeld, CEO of MarketVector Indexes.

On Friday, JPMorgan Chase CEO Jamie Dimon told investors that "now may be the most dangerous time the world has seen in decades." The Israel-Hamas war and the war in Ukraine, he said, "may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships."

The $116.92 million iShares MSCI Israel exchange-traded fund, the biggest ETF exposed to Israeli stocks, hit its year-low for the fifth time in one month on Monday and saw about $5 million in net outflows last week.

The ARK Israel Innovative Technology ETF gained back 0.5% on Monday after falling by more than 4% on Thursday and Friday.

The TA-35, a benchmark index for the Israeli stock market, has dropped by about 2% in the past five days.

The turmoil comes during an already shaky year for markets as Israeli prime minister Benjamin Netanyahu enacted controversial judicial reform that led to protests around the country. The TA-35 is down nearly 6% year-to-date.

Big names, big exposure: As the war continues, businesses with headquarters, factories and inventory in Israel appear increasingly at risk to geopolitical turmoil.

Shares of autonomous vehicle chip maker Mobileye Global, the largest company in Israel based on market cap, have fallen by about 9% over the past five trading days.

Tower Semiconductor, another chipmaker based in Israel, fell by about 4.3% over the same period.

Israel's Teva Pharmaceutical, the largest generic drugmaker in the world, fell by about 1%.

Looking forward: What comes next depends on how the war plays out in the Middle East, said Raffi Boyadjian, an analyst at XM, in a note. "If the war remains confined between Israel and Palestinians, it's likely that the markets will forget about it after a few days," he wrote.

Since World War II, military shocks resulted in average declines for the S&P 500 up to 30 days after the event, said Sam Stovall, chief investment strategist at CFRA. But stocks, he said, typically recovered 60 days after the event.

There have been, he warned, "several instances that triggered or exacerbated US recessions and bear markets, such as the Yom Kippur War in 1973 and Iraq's invasion of Kuwait in 1990."

Add these concerns to still-elevated inflation rates and worry about the upcoming corporate earnings season, he said, "and one can understand why investors may think stock price gains could stall."

CVS, Walgreens and Rite Aid are closing thousands of stores. Here's why

Drugstore chains for decades saturated US cities, suburbs and small towns with new stores.

Now, they are closing thousands of stores, leaving gaps in communities for medicines and essentials, reports my colleague Nathaniel Meyersohn. Researchers find pharmacy closures lead to health risks such as older adults failing to take medication.

Rite Aid, the third largest standalone pharmacy chain, filed for bankruptcy Sunday and will reportedly close roughly 400 to 500 of its approximately 2,200 stores.

It comes amid walkouts by Walgreens pharmacists and technicians around the country and at CVS stores in Kansas City over low pay and understaffed stores.

Rite Aid's bankruptcy reflects long-term struggles in the retail pharmacy industry.

The majority of drugstores' sales comes from filling prescriptions. But their profits from that segment have declined in recent years because of lower reimbursement rates for prescription drugs.

The front end of drugstores, where they sell snacks and household staples, also face pressure.

CVS, Walgreens and Rite Aid are eliminating some locations as they face rising competition for these items from Amazon, big-box stores with pharmacies like Walmart, and Dollar General in rural areas.

Although drugstores benefited during the pandemic from people getting Covid-19 vaccines, fewer consumers visited stores to shop and prescription volumes fell because people were getting fewer elective procedures.

"The pandemic was not a strong time for drugstores," said David Silverman, a senior director at Fitch Ratings.

Theft has become a problem for drugstores in some locations, and some stores have resorted to locking up products to prevent theft. But this has made the customer experience worse.

CVS, the largest US chain, closed 244 stores between 2018 and 2020. In 2021, it announced plans to close 900 stores by 2024.

Walgreens said in 2019 it would close 200 stores and in June announced an additional 150 store closures.

Bill Ford calls on striking union to 'stop this now'

Bill Ford, the executive chair of Ford Motor Company, made his first public comments since negotiations began with the United Auto Workers union and the Big Three automakers. He called on the UAW to "stop this now," and bring an end to talks, reports my colleague Vanessa Yurkevich.

Ford, who has been involved in every contract negotiation with the UAW since 1982 said Monday the company is at a crossroads with the UAW and a strong manufacturing base is critical to US national security and essential to the future of US auto manufacturing.

He said the company's financial ability to invest in the future is the "lifeblood of the company", and without it — factories like Rouge in Dearborn, Michigan, will close.

"Bill Ford knows exactly how to settle this strike. Instead of threatening to close the Rouge, he should call up [Ford President] Jim Farley, tell him to stop playing games and get a deal done, or we'll close the Rouge for him," said Shawn Fain, UAW president, in response to Ford's comments Monday.