Back in 1963, Britain was beset by governmental dysfunction, political scandal, faltering economic conditions, and geopolitical challenges. Sound familiar? That year, when asked by a reporter to identify the biggest threat he faced as a leader, British Prime Minister Harold Macmillan replied, in his plummy aristocratic accent: “Events, dear boy, events.”

I thought of that famous line today, while surveying the chaos in the Middle East and in Washington, DC. Due to unexpected turmoil at home and overseas, previously positive economic and financial forecasts have been revised downward. Stocks are in a slump.

Below, I’ll put these events into perspective. I’ll also steer you toward a specific course of action that can generate investment growth, with less risk.

WATCH THIS VIDEO: Navigating Treacherous Financial Waters

As I write this column Friday, the GOP’s clown show search for a new House speaker continued, with Congress at a standstill. Funding to keep the federal government open is scheduled to expire in less than a month. The prospect of a government shutdown is making Wall Street nervous. We’ve seen this three-ring circus before.

Of even greater importance are two foreign wars that are getting bloodier with each passing day. The Israel-Hamas war qualifies as a “black swan” event and it has helped push crude oil prices higher, due to worries over supply disruptions. The Russia-Ukraine war, and tight supplies caused by OPEC+ production restrictions, also have provided a tailwind for crude prices.

More expensive oil benefits energy investors, of course, but it’s inflationary. Renewed worries about inflation have been pushing bond yields higher, which typically hurts stocks.

Also weighing on stocks has been Federal Reserve Chair Jerome Powell’s Thursday speech, which focused on the central bank’s outlook for the U.S. economy. The voluble Powell can’t seem to shake his predilection for talking down the markets.

Powell’s warnings about inflation’s persistence are another factor lifting long-term yields, with the benchmark 10-year U.S. Treasury yield currently flirting with the 5% mark, the highest in 16 years. Since the Fed’s last meeting in September, 10-year Treasury yields have risen about 0.6 percentage points.

Tesla’s troubles…

Third-quarter corporate earnings season is underway, so far with mixed results. The Big Banks have posted generally solid numbers, but other major companies have come up short.

Notably, shares of electric vehicle (EV) maker Tesla (NSDQ: TSLA) tanked following the company’s Q3 operating results released Wednesday, which missed expectations by a mile (see chart).

Tesla’s CEO, the mercurial multi-billionaire Elon Musk, stated during the Q3 earnings call that the Israel-Hamas and Russia-Ukraine wars are dampening consumer sentiment, saying “buying a new car isn’t front of mind” in uncertain times like these. Musk also cited “operating expenses driven by Cybertruck, AI and other R&D projects.” Left unsaid during the call was whether Musk has been too distracted by his colossal mismanagement of Twitter, now called X.

To be sure, higher interest rates are a disincentive for consumers, and the increasing scarcity of essential manufacturing inputs such as cobalt and lithium makes EVs more expensive.

Transitioning from fossil fuels to renewables is a laudable goal, but “green” adherents have underestimated the cost of that change and the raw materials it will take to get there. However, after we get past these speed bumps, the long-term future for EVs remains bright.

Meanwhile, shares of streaming giant Netflix (NSDQ: NFLX) have gotten a boost following a strong Q3 earnings report, released after the market closed Thursday.

Corporate operating results will remain in the spotlight over the coming days, especially from the Big Tech stalwarts that wield disproportionate influence within the S&P 500.

Higher for longer?

The move higher in yields has occurred amid revised Fed projections that show fed funds policy rates that are kept higher for longer, due to surprisingly strong economic growth. In public remarks in recent days, Powell and other Fed officials have reaffirmed their commitment to fighting inflation, which has made investors apprehensive that the central bank may overdue its tightening campaign.

The Fed is scheduled to meet October 31-November 1, with markets expecting no change to the current policy rate. However, an unpleasant surprise on rates could be in the offing for the December 14 meeting, as the economy and jobs market show remarkable resilience.

U.S. initial jobless claims, released Thursday, were 198,000 for the period ending October 14, below consensus expectations for 212,000, and at their lowest since January. The reading is also well below the average weekly initial jobless claims since 2000 of over 300,000. The unemployment rate currently hovers below 4%.

While a vibrant labor market underpins consumer spending and economic growth, markets have interpreted recent strong jobs data as potential justification for the central bank to maintain a restrictive policy stance. This dynamic has pushed bond yields higher and equities lower over the past month.

The main U.S. stock market indices closed lower on Friday as follows:

• DJIA: -0.86%
• S&P 500: -1.26%
• NASDAQ: -1.53%
• Russell 2000: -1.29%

In a bad omen, the S&P 500 closed below its 200-day moving average. Nothing good happens below that key threshold. All 11 S&P 500 sectors fell in a broad-based selloff. For the week, the S&P 500 was down 2%, its worst week in a month.

Global equities swooned this week as well, largely due to geopolitical strife and China’s worsening economic woes.

Fifty years of wealth-building…

Spooked by current events? You don’t have to sit on the sidelines. For outsized gains with mitigated risk, I suggest you consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.

Personal Finance, founded in 1974, is our flagship publication and it has helped investors build wealth for nearly 50 years.

Case in point: If you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).

Want to get aboard “The Next Chevron?” Click here for details.

John Persinos is the editorial director of Investing Daily.

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