2024-05-06 06:50:28 ET
Summary
- The Red Sea crisis, caused by attacks on commercial shipping vessels by Houthi militants, has impacted global trade and shipping routes.
- Shipping costs and transit times have increased, particularly on routes between Asia and Europe.
- We expect the crisis to have a limited impact on the US market due to its trade routes being less impacted.
- We calculated the earnings impact to the US market of $8.9 billion, which reduces the valuation of the S&P 1500 index by 0.5%.
In our previous analysis of the US stock market outlook, we projected GDP growth to range between 1.7% and 2.12% and anticipated interest rates to fall within the 4.39% to 4.6% range based on our proprietary economic model. We derived a 12.7% valuation upside based on the market 5-year average P/E ratio (26.62x) and analyst consensus EPS growth (11.5%) in 2024. However, we highlighted several risks to the thesis including the "reported attacks on commercial shipping vessels", which impact global logistics as "large shipping companies have been avoiding the Red Sea".
For context, the Houthi group has been fighting a civil war since 2014, against the United Nations internationally recognized government of Yemen (who aided by coalition forces backed by Saudi Arabia and other Gulf nations). As geopolitical tensions in the Middle East have risen, the Houthis have started attacking commercial ships transiting through the Red Sea, off the coast of Yemen....
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SPTM: The Potential Impact Of Red Sea Crisis On U.S. Market Earnings