Advisers and investors take new military action in stride

Day after Obama authorizes new round of air strikes in the Middle East, oil drops. What gives?

Sep 11, 2014 @ 1:57 pm

By Trevor Hunnicutt

President Barack Obama's expanded military effort to destroy a militant force in Syria and Iraq came on the eve of the 13th anniversary of the Sept. 11, 2001 terror attacks. But the reaction of jaded investors couldn't have been more different.

Mr. Obama's announcement that the U.S. would authorize the use of airstrikes in Syria and the deployment of military advisers in Iraq came as the Islamic State, a group also known as ISIL and ISIS, gained ground in the two Middle East countries that have already been the scene of years of war.

In the past, similar announcements of military action weighed on financial markets. But on Thursday, markets took the dour news in stride. A widely used benchmark for crude oil futures climbed less than a percent. And yields on 10-year Treasuries, which move inversely to prices, ticked up about half a percent. The S&P 500 was down moderately, about 0.24%, while the small-company-tracking Russell 2000 index inched up 0.21% in midday trading.

Many global stock markets remain near or at all-time highs.

“It's something that's going to be a part of our defense strategy, and I think the markets are used to that,” said Tom Orecchio, an adviser at Modera Wealth Management in Westwood, N.J., which manages nearly $1.6 billion.

He said clients have asked to take risk off the table at two major points in his 24-year career: in 2008, as markets tumbled globally, and to a lesser degree when the U.S. sent troops into Iraq on Mar. 19, 2003.

“Geopolitics has impacted my clients' thinking and my clients' concerns, but I'm not so sure that it dramatically impacted my clients' returns,” Mr. Orecchio said.

This time, despite the brutality of ISIS, people don't perceive militant groups as affecting global markets.

“The simple, if mercenary, reason that U.S. stocks have shrugged off the crisis in Iraq and Syria is that ISIS isn't out to cut oil supplies,” Nicholas Colas, chief market strategist at ConvergEx Group, a New York-based brokerage firm, said in his daily market commentary. “The terror group, in fact, sells all it can produce from the wells it captures.”

One other reason Mr. Obama's actions didn't rattle investors is that many have been moving to place assets in safe haven for the better part of the year as the Islamic State gained steam, Kiev waged a fight against implacable, Russia-aligned separatists in eastern Ukraine, and a half-dozen other crises simmered around the world.

Investors have put $112.3 billion into mutual funds and exchange-traded products invested in intermediate and long-duration bond funds this year through Aug. 31, , according to BlackRock Inc., the world's largest money manager. Last year, they pulled $241.4 billion out of those funds, the firm says.

The money flows are particularly striking because professional investors almost universally anticipate rising U.S. interest rates over the next several years. Rising rates could erode the value of those longer-term bond positions.

“There is a desire to maintain some sort of an anchor to protect against the downside,” said Anthony Valeri, senior vice president of fixed-income research at LPL Financial, the largest independent broker-dealer.

Yet many advisers are keeping their strategies steady.

“We all know Wall Street loves certainty, and it's become all but certain what we have for the next two years,” said Doug Flynn, adviser at Flynn Zito Capital Management in Garden City, N.Y., which manages more than $300 million. “A lame-duck president combined with a do-nothing Congress sets up for a continuance of the fabulous governmental nothingness which, in turn, allows business to do what it does best for the next two years.”

0
Comments

What conversations are you having with your clients about global tension?

View comments

Recommended for you

Upcoming Event

Sep 10

Conference

Denver Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why a #MeToo story about the financial advice industry was important to do

Reporter Greg Iacurci and editorial director Fred Gabriel discuss the survey behind our cover story on sexual harassment in the workplace.

Video Spotlight

We started as a boutique firm with huge ambitions. Schwab was a perfect fit.

Sponsored by Schwab Advisor Services

Recommended Video

Keys to a successful deal

Latest news & opinion

10 millennials making their mark in Washington — and beyond

These next-generation leaders are raising their voices and gaining influence over financial advice regulation and legislation.

Warburg Pincus among private equity managers interested in acquiring Kestra Financial

Sources say Kestra is being valued at between $600 million and $800 million, about eight to 10 times EBITDA.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Former Merrill Lynch star broker Thomas Buck sentenced to 40 months in prison

He pleaded guilty to securities fraud in 2017; charged clients excessive commissions.

Rules for claiming Social Security at 70

Some individuals' benefits will begin automatically; others have to take action.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print