Biggest market risk: Middle East turmoil

stock market risksA number of global problems dominate investors' worries, and experts say the market's biggest risk is the escalating political turmoil across the Arab world and the impact on oil prices. By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney) -- No one saw it coming. As champagne corks popped and confetti swirled to usher in 2011, most experts pointed to Europe's ongoing sovereign debt crisis as the market's biggest hurdle this year.

But all that changed in January, when violence and chaos heated up across the Arab world, starting with massive protests that toppled Tunisia's longtime authoritarian leader. It didn't end there: Egypt, Libya, Nigeria and Saudi Arabia are among the hottest spots right now, and not in a good way.

Click the chart to track oil and other commodity prices.

Experts now cite the escalating political turmoil in the Middle East and North Africa, and its impact on oil prices, as the biggest threat to the market, according to an exclusive CNNMoney survey.

The unrest has already triggered a nearly 20% spike in crude prices this year, amid fears that the revolts will spill over into other oil-rich countries and disrupt supplies.

"The liberalization movement has a life of its own, and my main concern is that it will spread and ultimately draw in Saudi Arabia," said Peter Tuz, president at Chase Investment Counsel, who is among the 60% of survey respondents who identify the Middle East situation as the biggest headwind.

Experts worry that that the proliferation could push oil prices back up to the record highs of near $150 a barrel set in 2008. That could derail the economic recovery, and in turn, put a serious crimp into the stock market rally.

"We've already heard some segments of corporate America express concern over profit margins at the current level of oil prices, and another $40 [a barrel] would exacerbate the situation," Tuz said.

Moreover, higher oil prices keep pressure on gasoline prices, which are already up 20% year-to-date at an average of $3.685 a gallon. Higher gas prices will inevitably have a deep impact on consumer spending.

"So far, people have tolerated the spike in gas prices, but discretionary spending really takes a swoon in an environment with gasoline at $4 a gallon," Tuz said.

Aside from the Middle East, experts are still worried about Europe's ongoing sovereign debt crisis.

A handful of respondents, including Fort Pitt Capital Group's senior equity analyst Kim Caughey Forrest, say it's a bigger concern than the problems in the Middle East.

"Banks in Europe hold a large chunk of the sovereign debt, and if sovereign entities default on their loans or come close, banks will have to take a haircut and lend less money to businesses and individuals that need it to grow," she said. "That risks a credit crunch and limits global economic growth."

Even with all those headwinds, there remain optimists, such as National Securities chief market strategist Donald Selkin, who thinks the market has already shown it can weather those risks.

"So far, [the risks] have not done that much to impede the ongoing recovery here," Selkin said. "I'm most concerned about China tightening rates, because if their economy slows down from its projected growth forecast, that could have a ripple effect on other parts of the world."

On Tuesday, China's central bank hiked interest rates for the fourth time in six months in an effort to combat inflation in the country.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.17%4.24%
15 yr fixed3.26%3.30%
5/1 ARM3.33%3.42%
30 yr refi4.16%4.22%
15 yr refi3.25%3.29%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 17,172.68 -107.06 -0.62%
Nasdaq 4,527.69 -52.10 -1.14%
S&P 500 1,994.29 -16.11 -0.80%
Treasuries 2.55 -0.02 -0.66%
Data as of 8:59am ET
Company Price Change % Change
Microsoft Corp 47.06 -0.46 -0.97%
Intel Corp 34.71 -0.11 -0.32%
Oracle Corp 39.58 -0.22 -0.55%
Ford Motor Co 16.36 -0.29 -1.74%
Cisco Systems Inc 24.97 -0.24 -0.93%
Data as of Sep 22

Sections

Shares in drugs companies take a beating after the U.S. made it harder for American firms to slash their tax bills by buying foreign rivals. More

There's plenty of data out there, but keep an eye on housing, manufacturing and people's spending. More

UPS announced Monday that it's bringing its in-store 3-D printing service to nearly 100 stores across the country. More

Big pocketed borrowers are paying lower average rates on jumbo loans and lenders are now requiring down payments of just 10% -- and, in some cases, waiving the mortgage insurance, too. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.