(Bloomberg) — The persistent rally in stocks was knocked for a loop Tuesday as investors retreated to safer corners of the market when the conflict in the Middle East intensified.
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Haven assets were bid up with bonds, oil, gold and the US dollar all advancing after Iran fired a barrage of missiles at Israel following an advance of armed forces into Lebanon. The US is actively supporting preparations to defend Israel, according to an earlier report.
Gold climbed above $2,670 an ounce during the trading day while oil briefly topped $71 a barrel.
“Markets are in wait and see mode,” said Kathleen Brooks, research director at XTB. “The next 24 hours will be critical to see how far this situation escalates and whether the rush to safe havens was justified.”
If the conflict blows over, she expect stocks and tech shares to recover. The tech sector was the session’s worst performer with Apple Inc. and Nvidia Corp. sinking around 3%. The Nasdaq 100 trimmed a more than 2% loss to a 1.4% drop in afternoon trading. The S&P 500 fell 0.9% while Treasuries held onto an advance.
The clash eclipsed the signals from Tuesday’s economic data. The US ISM price index fell by the most since May 2023, while US job openings rose in August to a three-month high, at odds with other readouts indicating slowing demand for workers. Treasury yields remained lower with the 10-year hovering around 3.74%.
“Today’s reports should weigh down the 10-year yield, dollar, and employment service stocks, though the payroll release is more influential,” according to Evercore ISI’s Stan Shipley, alluding to Friday’s highly anticipated employment readout. “However, geopolitical stories out of the Mideast are more important for Treasury markets.”
A longshoremen’s strike was also stirring up angst as the longer traffic at major US container ports is shuttered, the bigger the economic losses. JPMorgan Chase & Co. estimates the stoppage will cost as much as $4.5 billion a day.
Investors will also get a chance to hear from vice presidential nominees JD Vance and Tim Walz in their sole debate of this election season in US afterhours. The would-be VPs are trying to win crucial swing voters in the lead up to November.
Shares of Nike Inc. weakened in postmarket trading after the athleticwear maker reported quarterly revenue that missed estimates.
Wall Street’s fear gauge — the VIX — spiked higher, touching a key level that usually indicates more market swings are in store.
Tuesday kicks off a historically positive, though often volatile, period for equities. The S&P 500 set its 43rd closing record on Monday notching a third-quarter rally that capped the longest such winning stretch since 2021.
“October has been a much friendlier month to bulls from start to finish, but in between it hasn’t been a walk in the park,” according to Bespoke Investment Group strategists. The S&P 500’s average intramonth peak-to-trough decline of around 4.6% is the largest of any month, according to Bespoke data going back to 1945.
To Michael Kantrowitz, chief investment strategist at Piper Sandler & Co., stocks are reflecting “an immaculate economic outlook.”
“The issue I see for any meaningful upside move for equities here is that there is essentially no risk priced into equities,” he said. “If rockets fly, markets will react even more.”
In money markets, swaps trader are wagering on a one-in-three chance the Fed will deliver another half-point cut in November, but that may not pan out as expected, Larry Fink warned.
“The amount of easing that’s in the forward curve is crazy,” Fink, the chief executive officer of BlackRock Inc. said in an interview with Bloomberg Television. “There’s room for easing more, but not as much as the forward curve would indicate.”
Elsewhere, Euro-area inflation slowed below the European Central Bank’s 2% target for the first time since 2021, prompting money markets to add to bets on another quarter-point decrease by the ECB this month. ECB President Christine Lagarde said the bank is growing more optimistic about reining in price pressures.
Key events this week:
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South Korea CPI, S&P Global Manufacturing PMI on Wednesday
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Fed speakers include Richmond’s Thomas Barkin, Cleveland’s Beth Hammack, St. Louis’s Alberto Musalem and Fed Governor Michelle Bowman on Wednesday
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US nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.9% as of 4 p.m. New York time
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The Nasdaq 100 fell 1.4%
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The Dow Jones Industrial Average fell 0.4%
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The MSCI World Index fell 0.8%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.6% to $1.1068
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The British pound fell 0.7% to $1.3282
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The Japanese yen was little changed at 143.55 per dollar
Cryptocurrencies
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Bitcoin fell 3.2% to $61,750.38
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Ether fell 4.8% to $2,488
Bonds
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The yield on 10-year Treasuries declined four basis points to 3.74%
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Germany’s 10-year yield declined nine basis points to 2.04%
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Britain’s 10-year yield declined six basis points to 3.94%
Commodities
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West Texas Intermediate crude rose 3.2% to $70.37 a barrel
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Spot gold rose 0.9% to $2,658.81 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alexandra Semenova, Allegra Catelli, Alice Atkins, Cecile Gutscher and Margaryta Kirakosian.
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