(Reuters) — The stock market saw a sudden shift on Tuesday as tensions in the Middle East escalated, causing investors to seek refuge in safer assets.
Haven assets like bonds, oil, gold, and the US dollar all saw gains after Iran launched missiles at Israel following military movements into Lebanon. The US has pledged support for Israel in response to the situation.
Gold prices rose above $2,670 an ounce, while oil briefly exceeded $71 a barrel.
Kathleen Brooks, research director at XTB, stated, “Markets are currently in a wait-and-see mode. The next 24 hours will be crucial in determining the extent of the escalation in the region and whether the flight to safe havens was justified.”
If the conflict subsides, Brooks expects stocks and tech shares to rebound. However, during the session, the tech sector, including Apple Inc. and Nvidia Corp., experienced declines of around 3%. The Nasdaq 100 saw a 1.4% drop, while the S&P 500 fell by 0.9%. Treasury bonds maintained their upward trend.
The geopolitical conflict overshadowed economic data released on Tuesday, which showed a significant drop in the US ISM price index and a rise in job openings in August. Despite conflicting data on worker demand, Treasury yields remained low, with the 10-year yield hovering around 3.74%.
Stan Shipley, from Evercore ISI, commented, “Today’s reports are likely to weigh on the 10-year yield, the dollar, and employment service stocks, although the payroll release later this week will be more impactful. However, developments in the Middle East are more critical for the Treasury markets.”
In addition to geopolitical tensions, concerns were raised about a longshoremen’s strike impacting major US container ports, potentially leading to significant economic losses estimated at up to $4.5 billion per day by JPMorgan Chase & Co.
Vice presidential nominees JD Vance and Tim Walz were set to participate in their only debate of the election season during US after-hours, aiming to sway swing voters ahead of November.
Nike Inc. saw a decline in postmarket trading after reporting quarterly revenue below expectations.
The VIX, Wall Street’s fear gauge, surged, indicating potential market volatility ahead.
October typically marks a positive yet volatile period for equities. The S&P 500 achieved its 43rd closing record on Monday, concluding a third-quarter rally that represented the longest winning streak since 2021.
Bespoke Investment Group strategists noted that October has historically been favorable for bulls, but with significant intramonth fluctuations, including an average peak-to-trough decline of approximately 4.6% for the S&P 500.
Michael Kantrowitz, chief investment strategist at Piper Sandler & Co., pointed out that stocks are currently reflecting an optimistic economic outlook but cautioned that the lack of risk pricing could hinder significant upward movement. He added, “If tensions escalate, markets could react even more dramatically.”
In the money markets, traders are betting on a 33% chance of the Fed implementing another half-point cut in November, although BlackRock Inc. CEO Larry Fink warned that current expectations for easing may be excessive.
Meanwhile, Euro-area inflation fell below the European Central Bank’s 2% target, prompting speculation of a quarter-point decrease by the ECB this month. ECB President Christine Lagarde expressed optimism about addressing price pressures effectively.
Key events scheduled for this week include South Korea’s CPI and S&P Global Manufacturing PMI on Wednesday, along with speeches from various Fed officials. The US nonfarm payrolls report is set for release on Friday.
Market Summary:
Stocks
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The S&P 500 declined by 0.9% as of 4 p.m. EST
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The Nasdaq 100 fell by 1.4%
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The Dow Jones Industrial Average dropped by 0.4%
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The MSCI World Index decreased by 0.8%
Currencies
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The Bloomberg Dollar Spot Index rose by 0.2%
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The euro declined by 0.6% to $1.1068
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The British pound fell by 0.7% to $1.3282
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The Japanese yen remained steady at 143.55 per dollar
Cryptocurrencies
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Bitcoin dropped by 3.2% to $61,750.38
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Ether fell by 4.8% to $2,488
Bonds
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The yield on 10-year Treasuries decreased by four basis points to 3.74%
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Germany’s 10-year yield dropped by nine basis points to 2.04%
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Britain’s 10-year yield declined by six basis points to 3.94%
Commodities
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West Texas Intermediate crude oil rose by 3.2% to $70.37 a barrel
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Spot gold increased by 0.9% to $2,658.81 an ounce
This article was generated using Reuters news content.
–With contributions from Alexandra Semenova, Allegra Catelli, Alice Atkins, Cecile Gutscher, and Margaryta Kirakosian.
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