3 Safe-Haven ETFs to Gain on Middle East Crisis

Iran launched a barrage of explosive drones and missiles towards Israel late on Saturday in its first direct attack on Israeli soil, prompting concerns of a significant escalation. Sirens blared in Israel, as reported by Reuters, and distant booming sounds were heard, likely from the interception of the drones.

Israel said it identified 300 "threats of various types" and eliminated "99%" of those bound for Israeli soil, according to an update from an Israel Defense Forces spokesperson, as quoted on CNBC. Iran's Revolutionary Guards seized a cargo ship in the Strait of Hormuz on Saturday, saying the vessel, associated with Israel, prompted heightened alert levels due to the possibility of a direct Iranian attack,

This could escalate a decades-old standoff between the two regional adversaries. Notably, the Gaza war between Israel and Hamas, now entering its seventh month, has heightened tensions in the region, extending to conflicts with Lebanon and Syria. Additionally, long-range attacks targeting Israeli interests have originated from Yemen and Iraq.

Market Impact

Investors are likely to take this clash seriously and rush toward fear-induced selling. The sudden rise of chaos in the market brightened the appeal for safe haven assets. Volatility ETFs which track the implied volatility of the market also surged thanks to the massacre in the stock market. iPath Series B S&P 500 VIX Short-Term Futures ETN VXX has added about 4.2% past week and rose 8.8% on Friday and advanced about 1% after hours on Apr 12.

Below, we highlight a few of the biggest gainers from the latest sell-off in the stock market. Also, these ETFs may continue to shine should tensions persist in the global economy in the near term.

Gold

Gold is often viewed as a hedge against market risk. The metal has seen some strength lately thanks to this market turmoil. Gold bullion ETF SPDR Gold Trust GLD has gained 0.4% in the past five days. It added 0.14% in after hours on Apr 12.

Long-Term U.S. Treasury

U.S. 10-year benchmark treasury yield slumped to 4.50% on Apr 12, 2024, down from 4.56% recorded on Apr 11 despite talks of higher-for-longer rates due to rise in volatility in the markets. Notably, U.S. Treasuries are also perceived as risk-free asset class which is why iShares Barclays 20 Year Treasury Bond Fund TLT and iShares Barclays 7-10 Year Treasury Bond Fund IEF added about 0.5% and 0.4% on Apr 12, 2024.

U.S. Dollar

The U.S. dollar is often viewed as a safe haven currency due to their strong liquidity and stable political systems. With the Fed likely to keep rates higher for longer due to sticky inflation, the U.S. dollar is likely to remain strong over the medium term. Invesco DB US Dollar Index Bullish Fund UUP can thus be played here.

Bottom Line

Although we do not expect this bearish trend to continue for long especially in the United States, which has a strong trend underneath, the upheaval in the stock market may persist for a week or so courtesy of the gloomy global backdrop and an oil price rally (due to crisis in the oil-rich Middle East). However, as the earnings season unfolds, this fluffy market should take a solid shape and decide on the fate of several asset classes and sectors.

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