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Here's How Investors Should Think About Syria (and Other Risks)

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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Investor anxiety regarding the possibility of a U.S.-led strike against the Assad regime in Syria appeared to subside today, at least if we use the U.S. stock market as our indicator. On the back of its worst day since June, the S&P 500 (SNPINDEX: ^GSPC  ) rose 0.27%, while the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI  ) was up 0.33%.

That carried over to the CBOE Volatility Index (VIX) (VOLATILITYINDICES: ^VIX  ) , Wall Street's "fear index," which fell 1.67% after recording a nearly 20% increase during the first two days of the week. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)

Not that the likelihood of a military response to the Syrian regime's alleged use of chemical weapons last week has decreased. Quite the opposite: Some sort of strike looks increasingly inevitable. The Obama administration had previously drawn a line in the sand with regard to chemical weapons, warning Syria that their use would invite a response. With Secretary of State John Kerry flatly stating on Monday that the former was now "undeniable," it's difficult to see how the U.S. would continue to sit on the sidelines without losing face.

True, the expected economic impact on the global economy of a limited Western military strike on Syria is small (although it might well have "fat tails" such that we are underestimating the likelihood of a substantial economy). However, the issue has less to do with fundamentals than with sentiment. Apparently, not everyone was feeling as sanguine as U.S. investors today, with major equity markets worldwide finishing in the red, including the U.K., Germany, France, Japan, and China.

The impact on the oil market was no less observable: There was no pullback in prices today, as October Brent crude oil futures rose 2% to $116.61 per barrel, after reaching a six-month high of $117.34 intraday. In a note published on Tuesday, French bank Societe Generale said the price could hit $125 in the coming days in anticipation of or because of a military strike, and $150 is possible if the Syrian conflict were to halt supply in Iraq or another Middle East oil producer.

In truth, as we head into more budget battles to keep funding the U.S. government and lift the debt ceiling, Syria is just one of several sources of imminent uncertainty. While both of these could roil the stock market, genuine investors will see opportunity in those circumstances. Anticipate increased stock market volatility, keep a cool head, and if you have investable funds, know ahead of time which shares you'd like to pick up in a correction -- and at which price.

The days of $100-plus oil are here, and they could be here to stay for a very long time, but for investors that are positioned to profit from $100 oil, that's a huge opportunity. To help investors get rich off rising oil prices, our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.

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Related Tickers

9/27/2016 4:45 PM
^DJI $18228.30 Up +133.47 +0.74%
^GSPC $2159.93 Up +13.83 +0.64%
S&P 500 INDEX CAPS Rating: No stars
^VIX $13.10 Down -1.40 -9.66%
Volatility S&P 500 CAPS Rating: No stars