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- Wall Street's biggest names have rung the alarm about geopolitical risk in recent weeks.
- Some – including Bridgewater founder Ray Dalio and JPMorgan boss Jamie Dimon – are even fretting about the risk of a potential world war.
- But the market doesn't seem to have noticed. Stocks are up and oil prices have fallen since Hamas attacked Israel.
After Hamas attacked Israel, some of Wall Street's biggest names went on record to ring the alarm about heightened geopolitical risk.
A few even raised the once-unthinkable prospect of a world war – with billionaire Bridgewater founder Ray Dalio saying there's a 50/50 chance a conflict involving the US and China erupts, and JPMorgan chief Jamie Dimon warning of the most serious global crisis since 1938.
The market merely shrugged its shoulders.
US stocks have climbed higher since October 7, brushing off a rough couple of months to rack up their longest winning streak in two years, while, benchmark oil prices have dropped despite worries about a broader crisis in the Middle East.
Even Wall Street's so-called "fear gauge" – the Chicago Board Options Exchange's VIX Index – has fallen in the aftermath of Hamas' first strike.
World war warnings
Traders' apparent indifference flies in the face of the grave warnings issued by big-name investors – some of whom are worried that the ongoing crises in Ukraine and the Middle East could spiral into a global conflict.
Bridgewater's Dalio said in a LinkedIn post last month that the latest conflict "is likely to have harmful effects that will extend beyond those in Israel and Gaza," adding that there's now a 50% chance of "a more uncontained hot world war that includes the major powers".
Meanwhile, JPMorgan CEO Dimon said in an interview with the UK's the Sunday Times that the Israel-Hamas war had made the world more "scary and unpredictable".
"These geopolitical matters are very serious – arguably the most serious since 1938," he added, referring to the year Nazi Germany annexed parts of Czechoslovakia and stepped up its persecution of Jewish people.
Other titans of investing – including BlackRock chief Larry Fink, hedge fund legend David Einhorn, and "Oracle of Boston" Seth Klarman – have also said that they're fretting about how the war could either drag the global economy into a recession or disrupt financial markets.
Stocks up, oil down
Despite all that doom and gloom, markets haven't reacted to the outbreak of a war in the Middle East in the way one might have expected.
US stocks have actually rebounded since the October 7 attacks, after a rough couple of months. The S&P 500 is up 2% and the Nasdaq Composite has climbed 3% — and in early November, both indices went on their best runs since late 2021. The VIX also notched its longest slide in over eight years this month, in a sign that market volatility has fallen as the conflict rages on.
In oil markets, Brent has dropped 2% and West Texas Intermediate has fallen 5% over the past five weeks, with the benchmarks dragged down by fears of a slowdown in global demand. Major crude exporters Iran and Saudi Arabia are also yet to become embroiled in the Middle-Eastern crisis, reducing the risk of supply disruptions.
Rather than zeroing in on big-picture questions like the threat of a global war, traders appear to have opted to concentrate on more granular issues – like the Federal Reserve signaling it could be poised to stop raising interest rates. Tuesday's Consumer Price Index report is expected to offer further reasons to be cheerful by showing that inflation cooled in October in the face of the central bank's tightening campaign.
"For the time being, they're watching it but they're getting on with the day job," ADM Investor Services International economist Marc Ostwald tells Business Insider. "It's not for lack of caring about it – but markets really don't like having to price geopolitical risk."
"The Dimons of this world are painting a fairly grim picture of the world because they're not looking at it from the market's perspective," he adds. "Markets are based on the latest news and reacting to it – it's very here and now."
It's a reminder that there are different rules in investing. Traders worry more about Fed chair Jerome Powell – and less about Hamas, Vladimir Putin, or even the potential threat of World War III – than someone who's not a markets junky might expect.