Despite Prolonged Israel-Palestine War, "US Stock Market Forecasts Q4 Rally"

Despite the adverse factors of prolonged high interest rates in the US and the war between Israel and the Palestinian militant group Hamas, there is a high possibility that the US New York stock market will experience a rally in the fourth quarter of this year.

Michael Wilson, a Morgan Stanley analyst, stated in an investor memo on the 16th (local time), "Although concerns about interest rate hikes and economic slowdown persist, the majority of investors expect a rally in the fourth quarter of this year if the current level is maintained in the short term," adding, "The likelihood of an S&P 500 rally is higher than the possibility that it will not happen at all." He also suggested that investing in defensive stocks, growth stocks, and energy-related stocks would be a good alternative.

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However, he judged that the current stock market is overvalued and maintained his previous forecast. His original year-end forecast for the S&P 500 index was around 3900 points, which is 10.8% lower than the closing price of 4373.63 on that day.

Wilson’s optimistic market outlook is unusual. He is considered one of Wall Street’s leading pessimists. Moreover, the US economy continues to face the effects of high interest rates and high inflation, and externally, uncertainty has increased due to Hamas’s invasion of Israel and the growing possibility of a prolonged war.

However, it is analyzed that he made this forecast due to the rally in AI-related stocks this year and the recent growing expectations for the end of US monetary tightening.

In particular, although last week’s surprise attack by Hamas triggered the largest war in 50 years since the 1973 Fourth Middle East War, the stock market did not react violently. Volatility increased as there were reports that oil-producing country Iran supported Hamas, but unless this war escalates into a broader Middle East conflict, the impact is expected to be limited.

Wilson explained, "The fact that the S&P 500 rallied on the first trading day of this week is evidence that it can withstand the external shock of the outbreak of war." However, he pointed out, "If the Israel-Palestine war escalates, the resulting sharp rise in oil prices remains a wildcard."

Meanwhile, Israel has signaled a ‘prolonged war.’ Israeli Defense Minister Yoav Galant met with US Secretary of State Tony Blinken on the same day and said, "The war with Hamas will be very long and costly," adding, "Israel is preparing for a long and expensive war, but ultimately Israel will win."

Secretary Blinken was dispatched to Israel on the 12th, the fifth day since the war began with the Palestinian militant group Hamas’s attack on Israel. After meeting Prime Minister Netanyahu, he toured Jordan, Saudi Arabia, and Egypt, and revisited Israel on the same day. In Tel Aviv, Blinken discussed the results of his recent Middle East tour and shared information about the situation on the ground with Prime Minister Benjamin Netanyahu, whom he met again after four days.