As the conflict involving Iran enters its third week, investors are drawing comparisons to historical market events, questioning whether the situation resembles the energy market chaos of 2022 following Russia’s invasion of Ukraine, the inflationary oil shocks of the 1970s, or even the period preceding the 2008 global financial crisis. Bank of America investment strategist Michael Hartnett notes similarities between the current environment and the lead-up to the 2008 crisis.
Hartnett points out that, similar to 2008 when oil prices doubled due to rising demand from China and India, oil has surged due to the Iranian conflict. He also highlights parallels in household finances, with falling savings rates and declining employment figures mirroring conditions before the GFC. Moreover, growing concerns about system risks in the private credit sector echo the anxieties surrounding subprime mortgages in 2008, raising questions about banks’ exposure.
Despite these concerns, Hartnett acknowledges that investors and regulators are more vigilant for bubbles and potential crises. There’s a widespread expectation that policymakers will intervene to support markets at the first sign of trouble. Hartnett suggests that such intervention might be triggered if oil prices rise significantly above $US100 a barrel, if the US 30-year Treasury bond yield exceeds 5 per cent, or if the S&P 500 dips below 6600 points. Vantage Point Asset Management’s Nick Ferres suggests current market valuations are heroic and don’t reflect the risks.
