U.S. stocks retreated from their records on Tuesday due to Iran firing missiles into Israel, escalating tensions in the Middle East. This led to fears of disruptions in the flow of oil, causing the S&P 500 to drop by 0.9% and the Dow Jones Industrial Average to lose 173 points, or 0.4%. The Nasdaq composite also dropped 1.5%. Oil prices rose as speculation arose about potential responses from Israel and the United States. While Israel is not a major oil producer, Iran is, and a wider conflict could impact other neighboring oil producers. This resulted in the price for a barrel of benchmark U.S. crude rising to $69.83 and Brent crude rallying to $73.56 per barrel.
The increase in oil prices led to gains in shares of oil and gas producers, with companies like ConocoPhillips and Exxon Mobil seeing increases in their stock prices. Shares of defense contractors also rallied, with companies like Northrop Grumman and RTX, which partners with an Israeli defense systems company, seeing gains. Despite these gains, the majority of U.S. stocks sank, with tech giants like Apple and Microsoft falling, along with smaller companies in the Russell 2000 index. Overall, the S&P 500 fell 53.73 points, the Dow dropped 173.18 points, and the Nasdaq composite lost 278.81 points.
The U.S. economy had been showing signs of growth despite a slowdown in the job market, with the Federal Reserve cutting interest rates to stimulate growth. However, a report showing a weakening in U.S. manufacturing in September raised concerns about the impact of high-interest rates on the economy. The Fed is expected to continue cutting rates through next year, but questions remain about the effectiveness of these cuts in stimulating growth. Despite concerns about the job market and inflation, a report showing an increase in job openings in August provided some hope for the economy.
Another potential threat to the economy is the strike by dockworkers at 36 ports across the eastern United States, which could disrupt supply chains and drive up inflation. However, financial markets have remained relatively unaffected so far, with most retailers stocking up on goods ahead of the strike. In the bond market, the yield on the 10-year Treasury fell as investors sought safer investments amid concerns about the Middle East tensions. Overall, global yields had been easing, with Europe experiencing lower inflation rates, potentially paving the way for more interest rate cuts by the European Central Bank.
In Asia, Japan’s benchmark Nikkei 225 rallied to recover some of its losses from the previous day, while China and South Korea remained closed for holidays. A survey by the Bank of Japan showed that large manufacturers in Japan are still optimistic about business conditions, despite global economic uncertainties. European stock indexes initially rose following lower inflation rates in the eurozone but later fell into losses. The overall market sentiment remains cautious due to geopolitical tensions and economic uncertainties around the world.
