Why you should financial model the Yom Kippur War

The recent OPEC+ decision to cut oil output by 2 million barrels per day is giving me a case of PTSD from a Yom Kippur long ago. In October 1973, the stock market was just getting over a case of Nifty Fifty growth stock mania. Arab armies, led by Egypt and Syria, made a surprise attack on Israel on Yom Kippur and overwhelmed the surprised defenders. The Israelis eventually prevailed in the conflict with US help. Arab oil-exporting countries responded with an oil embargo that spiked energy prices and caused a deep recession. The stock market fell roughly -50% on a peak-to-trough basis before recovering.

Fast forward to 2022. Instead of the Nifty Fifty, we have the FANG+ mania, which may be show signs of fading. Instead of a Middle East war, we have the Russo-Ukraine war. Instead of an Arab Oil Embargo, Russia has weaponized energy, mostly against the EU. Despite much lobbying by Washington, this year's Yom Kippur brought an OPEC+ surprise. The organization made a decision to cut oil output by 2 mbpd. While the cut isn't as bad as it sounds because a number of OPEC members aren't producing at capacity, the decision nevertheless shows that the US and Europe have no allies within OPEC. As a consequence, Street analysts are scrambling to raise their oil price forecasts, and higher energy prices are likely to put pressure on the Fed to stay hawkish.

Will investors see a repeat of the 1973-1974 bear market in 2022-2023?

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