The eyes of the world are focused on the Middle East after the massive terrorist attack and invasion by Hamas in southern Israel that killed 1,400 and saw the abduction of over 200 people as hostages. Since then missile and mortar counter attacks by each have been daily occurrences. Israel is preparing for the invasion of Northern Gaza while the US is trying to get humanitarian safe zones and aid to the innocent Palestinians trapped by Hamas.

A missile attack on a hospital in Gaza City (the Al-Ahli Baptist Hospital) yesterday has been blamed on Israel. It killed over 500 refugees and has been condemned by the world as a war crime. Hamas quickly blamed Israel as it looked to scuttle the Biden trip to Israel and Jordan (to meet the King and the President of Egypt). They have achieved this and the only meetings Biden will have will be with the Israelis. The only progress was to get the Rafah crossing in Egypt open to send medical, food and other relief supplies into Gaza. No progress was made in getting the crossing point open for foreigners to get out of the war zone. The more difficult the situation in Gaza for the general population the better the political situation for Hamas. Hamas is doing a great job of deflection from their horrific actions and now want the resulting horrific impact to bloody Israel’s reputation. 

World wide protests have erupted due to the hospital attack and most are condemning Israel as causing this war crime with an air attack. Israel denied any of its planes were involved and that the attack was done by Islamic Jihad, as they fired an errant missile that hit the hospital (Or, was this deliberate?). They and Hamas deny this but Israeli drones filmed the incident and have radio traffic between Hamas and Islamic Jihad chatting about the event. President Biden now says that US intelligence (overhead imagery etc.) have evidence showing the explosion at the hospital was caused by the militant group Palestinian Islamic Jihad. Will the world believe it?

With Biden leaving the area shortly, the clock starts ticking for Israel to start the land war to destroy once and for all the terrorist group Hamas. 

Issues to be aware of:

• Iran’s proxies are getting ready to attack Israel once the ground war in Gaza starts. Hezbollah in Lebanon has a bloodied military that can give Israel a tough fight. They are already raining down rockets/missiles/drones on northern Israel and wiping out early warning systems of Israel on the border. Many communities in northern Israel have been evacuated. Syria (an Iranian proxy) has started shelling as well and can add to the northern battlefront. In Iraq, Iranian backed Shia militias have attacked US air bases in the country adding another area that needs to be watched. Iran could move its militias from Yemen, Iraq, Syria and Lebanon around in the north of Israel to lessen the forces in the Gaza area and make that operation more challenging. 
• Iran does not want a direct confrontation with the US but it has directed its proxies to destroy Israel from the Jordan River to the Sea. The ruling Mullahs have riled up their own population for war against the Zionist State and have moved their economy to a war footing. Not only to help Russia defeat Ukraine and its NATO backers but now to finally see the end of Israel. Its proxies will do the fighting but it will focus its political machine against Israel to deflect from their domestic problems. 
• Crude prices have lifted US$5/b over the past week as investors fear a supply disruption. We don’t see this as likely. The geopolitical risks are high but the oil reserves and production are not in this area so no supply problems should arise. 
• Qatar has been enlisted to get the foreign nationals out of Gaza and has close ties to Hamas. Those with Palestinian dual nationality and have a foreign passport could be released. Those with US passports could have it more difficult, especially if dual with Israel. Hamas classifies them as Israeli and will keep them for a large hostage release of their prisoners in Israel. The whereabouts of kidnapped victims taken by Islamic Jihad is unknown. 
• If this expands to a two front war the US carrier groups will be needed to disrupt any large missile offensive by the Iranian proxies which could overwhelm the Israeli Iron Dome system. With 80 planes on each carrier and offensive missile capacity on the support ships of the carrier groups this should aid Israel to stave off this northern destruction. 
• Western media has moved from support of Israel after the attack on October 7th to attacking the country as we see more and more destruction of Gaza. Little mention of the attacks on the north of Israel and additional casualties get air time. Protests around the world are now against Israel as it nears the offensive to end Hamas. In the court of public opinion Israel will surely lose the war but needs to snuff out Hamas if it is to exist.  When war starts there are hard truths and the worst is that the ‘truth’ becomes a casualty and ignored as sides are taken. Once President Biden’s Air Force One is back in the US the war should start. 

The US economy remains hotter than forecast as consumers keep on spending and increasing their credit card debt to maintain lifestyle. US Retail Sales rose 0.6% in the month of September (8.4% annual rate during Q3/23) above the expectation of 0.2% for September. With a hot CPI and PPI, the Fed is in a box about what to do at their next FOMC meeting on October 31st/November 1st. Consensus is for no increase this time but that there would be one at the December meeting. Not all is well with retail as Rite Aid filed for bankruptcy. It had 2,100  stores and wanted to close unprofitable stores to get out of bankruptcy. The US 2-Year Treasury Yield has gone to a new high for 2023 at 5.22% and is a problem for stocks as a risk free alternative. 

Ukraine in the meantime is being overshadowed by the Israel/Hamas war but is quietly getting new long range ballistic missiles to attack deep into Russia. They have destroyed a significant number of military ships, planes and helicopters with the recent longer range munitions. On the Russian side they are receiving vast quantities of military equipment and munitions from North Korea that are being found on the front lines in Ukraine. 

And don’t forget China which is watching the US empty its shelves of weapons and munitions to help Ukraine and Israel. There are many reports of shortages. This may encourage China to move on Taiwan as the US will have trouble fighting wars on two fronts. China has increased its moves in the area it considers China’s and its neighbors are getting more worried. China may want to lift nationalistic tendencies as its economy suffers from a real estate collapse. 

Market Movement:  We have warned about a breach of the 33,600 level for the Dow (today at 33,770), which would complete a topping formation for the Dow. We are closing in on this level. A close below 32,600 would set up the waterfall decline phase to below 30,000. Stay patient with cash reserves. 

Once this correction has lowered stock prices and fear has returned to the markets over the coming weeks, be ready to buy the bargains that develop. As the general stock market declines we expect energy prices to back off and the Energy Bullish Percent Index to retreat back to below 10% and ring the bell for the next BUY window. The last BUY signal was in March and we added 14 new ideas to our Action BUY List. Many energy stocks are down from their 2022 highs, and many trade around Proved Developed Producing (PDP) Reserve valuations levels. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.