Investing Insights for the week

Rising geopolitical risks bring more volatility on the stock market. Profitable investing in such market environment becomes challenging. How to trade the stock market this week. We share our insights.

How to Trade this Week

The escalating tensions between?Iran and Israel sparked?volatility in global markets. This week investors will closely monitor the situation amid growing concerns of a full-blown war. In our view this conflict may have a negative impact on the stock market:

Risk Aversion:

• Uncertainty: Geopolitical tensions create uncertainty. Investors become risk-averse, seeking safer assets.
• Panic Selling: Any escalation in tensions could trigger panic selling across various asset classes.
• Fading Expectations: Stocks have already been under pressure due to fading expectations for significant Federal Reserve interest rate cuts this year.

Crude Oil Prices:

• Our research findings suggest that the Iran-Israel conflict might push?crude oil prices above $100 per barrel.
• Higher oil prices can impact corporate profits and consumer spending, affecting overall market sentiment.
• Upside risk to crude oil price: The closure of the?Straits of Hormuz?by Iran (disrupting oil outflows) remains a significant risk. The Strait of Hormuz is the world’s most critical?oil chokepoint?due to the massive volumes of oil that flow through it. One-fifth of the world’s oil supply relies on this passage, and there is no viable alternative for transporting oil from the region. Despite the existence of the?Saudi Arabia East-West Pipeline,?Saudi Aramco?remains significantly reliant on the Hormuz channel. Despite occasional tensions, lasting disruptions to oil flows are unlikely.?However, even short-lived closures could have a significant impact on global oil markets, in our view.

Safe-Haven Assets:

• During geopolitical turmoil, investors flock to safe-haven assets: Precious Metals: Gold and silver tend to rise. Safe Haven Currencies: Currencies like the U.S. Dollar and Japanese Yen strengthen. Crude Oil: Despite its impact on prices, oil is also considered a safe-haven asset.

Recent Market Behavior:

• After Iran’s action over the weekend, Gulf and Israeli stock markets showed marginal declines.
• Optimism exists that there may be some buying activity in stocks if the situation remains stable.

Our suggestions

Focus on U.S. Dollar and Gold

Most Asian currencies weakened over the weekend with the Japanese yen testing new 34-year lows, while increased safe haven demand, in the wake of an Iranian strike on Israel, put the dollar at more than five-month highs. The U.S. dollar was also boosted by the prospect of higher-for-longer U.S. interest rates, after the disappointing CPI data last week. During the times of market stress (we see increase in VIX Index), it is recommended to focus on so-called safe-heaven asset classes, including U.S. Dollar and Gold.

Bitcoin – is it a save-heaven in current market environment?

Bitcoin, often referred to as “digital gold,” has been a topic of debate when it comes to its status as a?safe-haven asset. In our view, a small percentage of investment in Bitcoin makes sense during increased market volatility:

Digital Gold?Narrative:

• We believe that Bitcoin serves as a store of value during economic instability.
• Like gold, it is?decentralized, limited in supply, and resistant to inflation.
• Recent market movements suggest that Bitcoin is becoming a safe-haven asset.
• Since adoption of Bitcoin by ETFs, the volatility has decreased. The?30-day estimate?of Bitcoin’s volatility is around?2.41%, while the?60-day estimate?is approximately?2.29%.
• Over the past three months Bitcoin has outperformed traditional safe havens like gold and the S&P 500.
• During the times of increase geopolitical risks we consider that Bitcoin is a safer investment than S&P500.

In summary, we highlight focus on investing in gold, U.S. Dollar and Bitcoin. The current situation related to Iran-Israel conflict remains uncertain, which is negative for the stock market.

We cannot properly estimate the probability of the escalation of the conflict. However, we consider that the situation will remain unstable these days. In addition, as we enter the second half of April, performance of the stock-market may be muted, meaning that we should not expect super returns on the stock market. From short-term investment point of view, we would recommend reducing exposure to high-risk stocks during the stock market strength.

For more detailed insights, please do not hesitate to contact us. We provide individual approach to each customer.