Many investors have been keeping a keen eye on the conflict in Syria and the prospect of escalating tensions in the region. Fears grew recently that the conflict could drag in Western powers, while Russia has vowed to support the Assad regime in Syria even if the West attacks.
Beyond this, concerns have also been growing that a strike led by the U.S. would lead to a wider conflict in the region, dragging in the likes of Iran or Israel, and possibly other nations in the area as well. As you might imagine, this has had a decidedly negative impact on stock prices lately, as the uncertainty and the possibility of a conflict are not exactly welcomed prospects to investors (also see Defense ETFs to Watch in Syrian Crisis).
However, there might have been somewhat of an accidental breakthrough when U.S. Secretary of State John Kerry suggested that if Assad turned over his chemical weapons, that he could avoid a U.S. strike. While many believed that this was unlikely to be met with support from the Syrian regime, it appears as if both Assad and his ally in Russia, Putin, are on board with the idea.
Investors seemed to take these reports at face value and breathed a sigh of relief over the news. It appears as though, at least for now, external involvement in Syria’s civil war will be limited, greatly decreasing the risk of a wider conflict, and also limiting the appeal of safe havens in the session.
This specifically caused the decline of a few segments of the financial world which had been seeing some solid trading as of late. Below, we highlight a few of the biggest losers from this report, which may continue to struggle should tensions cool in the region:
Gold is often viewed as a store of value and a hedge against market turmoil. The product has seen some strength lately thanks to concerns over widespread fighting in the Middle East, and was up nearly 5% over the past month before today’s report (see all the Precious Metal ETFs here).
ETFs tracking gold bullion such as (GLD - ETF report) or (IAU - ETF report) lost about 1.6% following the news about the chemical weapons plan, pushing these lower than the overall market on the day. Gold miners also struggled—as their main revenue source lost some of its value—while both bullion and miners could see weakness if more steps away from the brink of war are taken in the near term.
Volatility investments like (VXX - ETF report) have a pretty terrible reputation for long term investors. Prices for these types of products tend to lose value over time thanks to a contangoed market, and a steep roll cost.
However, lately, thanks to broad market concerns, VXX has been a decent performer adding about 6.3% in the past month. This clearly wasn’t built to last though, as following the report from Syria, VXX lost about 3.7% on above average volume (see all the Volatility ETFs here).
While Syria isn’t the biggest producer of oil by any stretch, the country does sit near several important oil routes, and a number of its neighbors are big oil producers as well. This is important because should there be any broader conflict in the region, it could call into question the extraction of those supplies, boosting the price of oil in the process.
Thanks to these worries, along with a solid economic footing in the U.S. and Europe, oil prices had been rising as of late. (USO - ETF report) was up about 3.6% in the trailing month before the report, while (BNO - ETF report) —representing Brent oil—had added about 6.1% in the same time frame.
Both of these ETFs struggled after the report was issued though, falling by about 1.6% each. Plus, volume was elevated for both, so look for both of these to struggle if the current trends hold in the region (also read Gold Mining ETF Investing Explained).
The news coming out of Syria may help to avoid war in the region, or at least prevent foreign powers from getting involved in the Syrian conflict. While it appears as if the initial plan was accidental, all sides seem to be running with it, which is good news for those who didn’t want the U.S. to strike.
This was viewed pretty positively by the market, as shares of most U.S. companies moved higher following the report. However, the report did have a negative impact on a few key sectors—such as oil, gold, and volatility, and these could continue to struggle in the days ahead if the plan for peace actually comes to fruition in this troubled part of the world.
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