The U.S. launched 59 cruise missiles at a Syrian airbase last night in retaliation for President Bashar al-Assad’s use of chemical weapons on a rebel-held town in Idlib province.
And financial markets barely budged on Friday, April 7. The Standard & Poor’s 500 fell all of 0.08% to finish the week about where it started. Oil, which usually reacts to any event anywhere near the Middle East, climbed with West Texas Intermediate up 1.04% to $52.24. That move amounted to 54 cents a barrel. Gold, that safe haven in times of worry, gained 0.32% to $1257.30 an ounce, an advance of $4 an ounce. The VIX “fear index” did move upwards, but only by 3.87%, a relatively minor move for the volatile CBOE S&P 500 Volatility Index. The VIX closed at 12.87 after beginning the week at 12.60. The close at 12.87 marked the 103rd straight close below 15. That’s the longest streak since February 2007.
The lack of reaction is a testament to how accustomed we and the financial markets have grown to news of cruise missiles or bombers or drones hitting some target in a far away place. The strikes are little more than markers in continuing wars or near wars that don’t seem to have any end. We don’t even muster much outrage anymore that attacks like these are launched by presidents without consultation with Congress, let alone approval.
I wouldn’t count on this market complacency continuing, however, because today has brought several events that could send this situation spiraling further out of control.
First, Syrian warplanes have taken off today from the very airbase that the U.S. cruise missiles hit last night to bomb rebel-held territory. This is a deliberate act of defiance on the part of Assad and his Russian allies. It’s going to take more than 59 missiles, Assad is saying, to make me change my policy of visiting atrocities on Syrian civilians. He has called and raised the stakes on the U.S. attack. Will the Trump administration stop with what it has described as a one-off attack?
Second, the Russians have said they have closed down the “deconfliction line” that provided U.S. and the Russian forces–including aircraft–operating in Syria with information on where the other side’s planes, artillery, and troops would be operating. The line was intended to try to minimize the possibility that U.S. and Russian forces, backing opposite sides in many parts of the country, would wind up shooting at each other. The goal was to avoid having a civil war in Syria turn into provocation for a direct conflict between the United States and Russia. Closing down the line of communication would raise the odds of an “incident” between the two countries. By shutting down the line Russia is telling the United States that the risk of its attacks in Syria provoking a wider conflagration had gone up after last night’s cruise missile attack. With Russian troops manning many of the anti-aircraft systems that Russia has provided to Assad, the likelihood of Russian casualties in the event of any U.S. attempt to “take-out” Assad’s air defense system is extremely high. That intimidation is, of course, the point of putting those Russian troops in harms way. (The United States has said that despite Russian statements to the contrary, the deconfliction line is still open and the military on the two sides are still sharing information.)
Where do we go from here?
I don’t expect the markets to be anywhere near as calm as they were today if U.S. and Russian forces wind up shooting at each other. Or if a U.S. attack kills Russians embedded with Assad’s forces. Or if Iran, the other nation backing Assad, decides to retaliate for the U.S. attack, either directly or more likely through one of its associated groups.
In any case it is extremely unlikely that the U.S. attack last night ended anything.
I know it feels odd, to say the least, to be worrying about portfolios and investments while civilian populations are being subjected to atrocities and while soldiers have been put in harms way. But such is the world as it exists. Whether we like it or not, markets do react to events like these. And remember that worrying about and managing your portfolio doesn’t mean you can’t do anything else from lobbying with your representatives, to helping the victims of this war, to … well to doing whatever you can think of.
