The recent uptick in global events (not that things were particularly calm before) doesn't seem coincidental. Many seem to scramble to tie loose ends before Donald Trump returns to the White House.
Otherwise, how can we explain the sudden spike in geopolitical tensions since November 8? In the Middle East, Syria has essentially been torn apart by its neighboring countries.
Meanwhile, the conflict between Ukraine and Russia has also escalated after the Biden administration gave the green light for Ukraine's use of long-range rockets against Russian territory.
Interestingly, global markets have reacted little to these developments so far. The S&P 500 and the Nasdaq remain on an upward trajectory, while oil and gold prices have remained relatively stable.
However, there is something that could change this.
On Monday, the EU adopted its 15th sanctions package against Russia, targeting 84 individuals and entities — 54 people and 30 companies, including those from China, India, Iran, Serbia, and the UAE.
EU members are now prohibited from working with firms in these countries, but since there are no secondary sanctions, trade networks are likely to grow rather than collapse entirely.
The problem is that the U.S. is also set to impose new sanctions. These measures include reducing the peak price of Russian oil below $60 per barrel and increasing pressure on the Russian shadow fleet.
Given that Russia remains a major global oil supplier, any disruption in this regard could shake energy markets, increase volatility, and trigger a new wave of inflation with attendant consequences.
Should we expect another pickup in prices?
Looking at U.S. Treasury yields, which remain above levels seen even before the first rate cut this year, the market seems to be pricing in a shift from disinflation to a return of higher price growth.
As for why, beyond the economy's strength, disruptions in energy markets and further trade wars expected with Trump's return could be factors. However, the S&P 500 is not concerned about these risks yet.
Instead, investors seem focused on staying ahead of the opportunity trend, even though the market is historically overvalued. And, of course, hopes for a Santa Claus rally may also be in play.
Will the rally end after January 20?
Recent geopolitical events — and those to come — are not easing global tensions or helping to stabilize the economy. However, it is too early to predict a major crisis because of them.
Tighter sanctions could become a bargaining tool in the high-stakes geopolitical poker game that could ultimately help achieve broader goals, such as resolving the Russia-Ukraine conflict.