Michael M. Santiago
U.S. stocks on Wednesday slid while crude oil jumped on geopolitical concerns sparked by a major escalation in the ongoing conflict between Israel and Islamist group Hamas.
An extended sell-off in bonds also weighed on equities, with the 10-year Treasury yield (US10Y) powering past the 4.90% level for the first time since 2007.
At home, the third quarter earnings season grabbed a chunk of the spotlight, with investors receiving results from major names and looking ahead to reports from Tesla (TSLA) and Netflix (NFLX) after the closing bell.
By late afternoon, the tech-heavy Nasdaq Composite (COMP.IND) had retreated 1.04% to 13,393.19 points. The benchmark S&P 500 (SP500) slipped 0.77% to 4,339.31 points, and the blue-chip Dow (DJI) declined 0.45% to 33,843.67 points.
The CBOE Volatility Index (VIX), also known as Wall Street’s fear gauge, rose more than 7% to surge past 19 points.
Diplomatic efforts to rein in the fighting between Israel and Hamas took a major hit on Tuesday after hundreds of Palestinians were killed in a blast at a hospital in Gaza. Hamas, which controls the Gaza strip, said the explosion was caused by an Israeli air strike, while Israel said it was caused by a failed rocket launch by Hamas’ affiliate group Islamic Jihad.
U.S. President Joe Biden visited Israel on Wednesday and met with the country’s Prime Minister Benjamin Netanyahu. Palestinian, Egyptian, and Jordanian leaders have canceled meetings with Biden since the explosion.
Nine of the 11 S&P sectors were in negative territory, led by Materials.
Energy and Consumer Staples were the two gainers, with the former adding more than 1% as WTI crude oil futures (CL1:COM) rose ~2%. Safe-haven asset gold (XAUUSD:CUR) also climbed.
“Overnight, we’ve seen more of a risk-off tone return in light of the latest geopolitical developments, with a summit cancelled between President Biden and Arab leaders in Jordan following an explosion at a hospital in Gaza,” Deutsche Bank’s Jim Reid said.
“That’s led to growing market concern, which has been evident in the sharp rise in oil prices overnight, with Brent crude up +2.22% to $91.90/bbl. In the meantime, investors have moved into haven assets, with gold up +0.79% to $1938/oz,” Reid added.
Treasury yields had given up some of their gains, as a continued sell-off in bonds saw a reprieve after the latest $13B 20-year auction. The longer-end 10-year yield (US10Y) soared to a session high of 4.93%. The 30-year yield (US30Y) was up 2 basis points to 4.97%, while the more rate-sensitive shorter-end 2-year yield (US2Y) was flat at 5.21%.
See live data on how Treasury yields are doing across the curve at the Seeking Alpha bond page.
Wednesday’s economic calendar had some data on the housing market. Mortgage applications fell in the past week, while housing starts rose less than expected in September.
Furthermore, the Fed’s Beige Book report on regional economic activity arrived, which showed that most districts saw little to no change in economic activity since September.
Turning to domestic markets, there were several earnings-related moves. Morgan Stanley (MS) slumped after its quarterly net interest income missed estimates while United Airlines (UAL) lost ground on soft guidance and the developments in the Middle East. Both stocks were among the top percentage losers on the S&P 500 (SP500).
All eyes are on Netflix (NFLX) and Tesla’s (TSLA) numbers after the closing bell.
