Stocks were lower Monday as the Middle East conflict added a dose of geopolitical risk to the interest rate and inflation concerns already facing markets.
In midday trading, the Dow Jones Industrial Average (^DJI) was just below the flatline. The S&P 500 (^GSPC) lost about 0.1%, while the tech-heavy Nasdaq Composite (^IXIC) fell nearly 0.5%.
Islamist militant group Hamas launched a large-scale attack on Israel on Saturday, prompting a declaration of war in response. That has rattled markets, as investors worry that another full-blown conflict could join the war already being waged between Russia and Ukraine.
“Geopolitical risk doesn’t tend to linger long in markets, but there are many second-order impacts that could come through in the weeks, months, and years ahead from this weekend’s developments,” Deutsche Bank strategist Jim Reid said.
Oil prices jumped as much as 5% after the attack amid speculation that key crude-producing countries in the region could be pulled into the fray. WTI crude oil futures (CL=F) and Brent crude futures (BZ=F) were trading over 4% higher at last check as fighting enters its third day. Meanwhile, safe havens gold (GC=F) and government bonds were in demand.
A sustained rally in oil could add to the inflationary pressures that already have investors bracing for another interest rate hike by the Federal Reserve.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Investors are increasingly facing up to the reality that borrowing costs are likely to stay higher for longer, with the surprisingly hot September jobs report on Friday just the latest data to make the case for more restrictive policy.
The recent rise in bond yields to 16-year highs shook investors who were already worried about the impact on the economy of further rate hikes and put pressure on stocks.
But it could give the Fed a reason to pause hiking, given some of its officials believe the bond rout is likely to tighten credit considerably. Trading in US Treasuries is closed on Monday for the US holiday.
The next crucial economic indicator up is the Consumer Price Index (CPI) for September, due on Thursday and expected to show a small drop in headline inflation. The release this week of minutes from the Fed’s last meeting should also provide more insight into policymakers’ thinking about the path of interest rates.
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JAirlines sink as oil rises, geopolitical fears swirl
Major airlines sold off on Monday morning as rising oil prices and a growing conflict in the Middle East dominated investor sentiment.
United (UAL), Delta. (DAL) and American Airlines (AAL) were all off more than 5% around 11:30 a.m. ET on Tuesday. Rising oil prices over the last few months had already driven the airlines to slash their profit outlooks due to rising fuel costs.
Delta is expected to report earnings on Thursday.
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Energy and defense stocks gain in morning trade
Lockheed Martin (LMT) and RTX (RTX) led Yahoo Finance’s trending tickers page on Monday, the first day of trading since a surprise attack on Israel by the Palestinian Islamist group Hamas fueled concerns of broader conflict breaking out in the Middle East region. Lockheed Martin shares rose about 6% while RTX popped more than 3%.
Another aerospace defense stock, General Dynamics (GD), rose more than 6% on Monday morning.
Oil prices also popped following the unrest in the Middle East as fears swirled that the conflict could disrupt oil production. Energy companies rose on the news with Exon Mobile (XOM) up nearly 4% and Occidental Petroleum (OXY) up more than 3%.
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Oil prices pop as geopolitical concerns mount
Oil prices jumped nearly 4% Monday morning after a surprise attack on Israel by the Palestinian Islamist group Hamas fueled concerns of broader conflict breaking out in the Middle East region.
West Texas Intermediate (CL=F) and Brent International (BZ=F) futures jumped about 4% to about $86 a barrel and $88 per barrel, respectively.
Hamas over the weekend launched the biggest military assault on Israel in decades. Prime Minister Benjamin Netanyahu said on Monday that Israel’s response to the attack will “change the Middle East.”
The Middle East accounts for more than 30% of the world’s oil production.
“There has been no oil supply disruption,” Lipow Oil Associates President Andy Lipow wrote in a note on Monday morning. “The oil market knee jerk reaction is to move higher on the fear that the conflict will spread, eventually drawing Iran into the conflict and impacting the transit of oil through the Strait of Hormuz.”
Lipow notes that Iran’s involvement will be key in determining how much the conflict could impact oil prices. The Strait of Hormuz, which is located between Oman and Iran, produces 17-18 million barrels of oil per day. If closed, that could result in a $20 to $30 per barrel increase in oil prices and a surge in gasoline prices in America.
For now though, Lipow believes the conflict won’t impact gas prices’ path downward.
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Stocks open lower amid Middle East conflict
Stocks were in the red just after the opening bell on Monday after a surprise attack on Israel by the Palestinian Islamist group Hamas sparked fears of broader geopolitical risk to markets.
The Dow Jones Industrial Average (^DJI) fell 0.1%, while the S&P 500 (^GSPC) dropped 0.4% and the tech-heavy Nasdaq Composite (^IXIC) slipped about nearly 1%.
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Chevron, Disney, and Bristol Myers Squibb: Stocks trending in premarket trading
Here are some of the stocks leading Yahoo Finance’s trending tickers page in premarket trading on Monday:
Chevron Corporation (CVX): Shares in Chevron were up 3% as oil stocks rallied amid new turmoil in the Middle East. The group has also been instructed by Israel’s energy ministry to shut down the Tamar natural gas field off the country’s northern coast.
Disney (DIS): Disney’s share price rose over 1%. Nelson Peltz’s Trian Fund Management has increased its stake in Disney, and the activist investor is expected to request multiple board seats.
Bristol Myers Squibb Company (BMY): Shares fell by over 1% premarket. The company said it will acquire cancer drugmaker Mirati Therapeutics for up to $5.8 billion, diversifying its oncology business.
Northrop Grumman Corporation (NOC): Shares were up 3% premarket on Monday. Defense stocks have started to see a rise amid the burgeoning conflict in the Middle East.
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KStock futures slide, oil surges
US stocks were poised to open in the red on Monday as investors weighed the potential impact of the surprise Palestinian attack on Israel launched at the weekend.
Futures on the Dow Jones Industrial Average (^DJI) dropped 0.38%, or 125 points, while S&P 500 (^GSPC) sank 0.48%. Contracts on the tech-heavy Nasdaq 100 lost 0.64%.
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Barbara Terrio is a seasoned business journalist, delving into the world of finance, startups, and entrepreneurship. With a knack for demystifying complex economic trends, she helps readers navigate the business landscape. Outside of her reporting, Barbara is an advocate for financial literacy and enjoys mentoring aspiring entrepreneurs.
