Michael M. Santiago
U.S. stocks on Monday pared back earlier losses to trade near the flatline, as markets weighed the potential ramifications of fresh conflict in the Middle East between Israel and Palestinian military group Hamas.
Over the weekend, Hamas hit Israel with a surprise attack, following which the country declared war.
Market participants largely shunned risky assets, buying gold and the dollar. Oil prices popped, while energy and defense stocks surged and travel stocks fell.
By afternoon, the tech-heavy Nasdaq Composite (COMP.IND) was down 0.20% to 13,404.37 points, pulling back from an earlier fall of as much as ~1%. The benchmark S&P 500 (SP500) was slightly higher by 0.05% to 4,310.56 points, while the blue-chip Dow (DJI) fluctuated and was last up 0.06% to 33,428.13 points.
Of the 11 S&P sectors, six were in negative territory, with Consumer Staples and Consumer Discretionary the top losers.
Energy jumped more than 3%, led by Chevron (CVX) and ExxonMobil (XOM), as WTI crude oil futures (CL1:COM) soared as much as 5.6% to $87.39. Analysts generally expect a “knee-jerk surge” in crude prices due to the new conflict, but limited gains thereafter.
Major defense contractors Northrop Grumman (NOC), General Dynamics (GD) and Lockheed Martin (LMT) were among the top percentage gainers on the S&P 500 (SP500). Conversely, United Airlines (UAL), Delta Air Lines (DAL) and American Airlines (AAL) along with cruise line operators Carnival Corp (CCL) and Norwegian Cruise Line Holdings (NCLH) were the top S&P percentage losers.
“Up until now, the move in the market is purely reflecting an increased risk premium, rather than any change in fundamentals,” ING said. “Israel is a very marginal oil producer, and so recent developments will have little direct impact on oil supply. However, given the rising tension in the region and the risk that the conflict could spread, market participants will remain nervous until there is a clear de-escalation.”
“While oil fundamentals have not changed since these attacks, it does not mean they won’t. There are reports that Iran helped Hamas plan the attacks and gave them the ‘green light.’ If this is proven to be true, we could see the U.S., an ally of Israel, taking a tougher stance against Iran, which could ultimately lead to a reduction in oil supply,” ING added.
U.S. fixed-income markets were closed on Monday on account of Columbus Day. See how Treasury yields have done across the curve at the Seeking Alpha bond page.
Markets put in a positive performance last week, as a brutal sell-off from late September sparked by the Federal Reserve’s ‘higher rates for longer’ message finally appeared to ease up. Traders will be looking ahead to key inflation data this week in the form of the latest consumer and producer price index reports, which will be the last before the next Fed monetary policy decision on November 1.
The economic calendar was light on Monday, with only TD Ameritrade’s Investor Movement Index reading on the docket. The gauge fell slightly to 5.64 in September from 5.70 in August, the first monthly decrease in five months.
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