The Dow and S&P 500 flipped positive at midday Monday, but investors still were favoring traditional havens after a surprise attack by Hamas on Israel over the weekend raised geopolitical alarms.
Declines for equities moderated after remarks by Dallas Federal Reserve Bank President Lorie Logan were seen as indicating a surge in long-term Treasury yields may mean the central bank has less need to further raise interest rates.
What’s happening
-
The Dow Jones Industrial Average
DJIA
was up 34 points, or 0.1%, at 33,442. -
The S&P 500
SPX
was flat at 4,308. -
The Nasdaq Composite
COMP
was down 38 points, or 0.3%, at 13,393.
Stocks bounced Friday after a stronger-than-expected September jobs report, allowing the S&P 500 to rise 0.5% for the week and break a streak of four straight weekly declines. The Dow saw a 0.3% weekly decline, while the Nasdaq Composite rose 1.6%.
What’s driving markets
The attack by Hamas on Israel raised fears of a broader conflict, sending crude prices jumping and spurring haven-related support for gold, the dollar and U.S. Treasury futures. The cash Treasury market is closed for the Columbus Day and Indigenous Peoples Day holiday.
See: Gold, U.S. dollar rally as investors flock to havens as Israel-Hamas war escalates
U.S. stocks saw only modest pressure, however.
“The human tragedy and geopolitical implications aside, from a market standpoint the attack matters because rising geopolitical tensions mean higher oil prices and the higher oil goes, the stronger the additional headwind on stocks and bonds,” said Tom Essaye, founder of Sevens Report Research, in a Monday note.
The price of Brent crude
BRN00,
the global energy benchmark, jumped by around 4% amid concerns oil supplies from the region may be compromised. Crude fell back significantly last week, however, after trading near $100 a barrel in September.
Need to Know: From $150 oil to no impact at all: What the surprise attack on Israel means to markets
Logan, in a speech, said that if interest rates “remain elevated because of higher term premiums, there may be less need to raise the fed-funds rate. However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more.”
Analysts said markets appeared to react to Logan’s comments on the term premium, which is defined as the extra compensation investors demand to bear interest-rate risk over the term of a bond.
“U.S. stocks dropped in the wake of the Hamas attack on Israel but have pared losses after Fed’s Logan downplayed the need for more rate hikes,” said Edward Moya, senior analyst at Oanda, in a note.
The U.S. Treasury market is closed on Monday for Columbus Day and Indigenous Peoples’ Day, but futures
TY00,
are trading and these indicate falling benchmark yields.
Meanwhile, traders may find their focus soon switches this week back to monetary and corporate issues. Markets ultimately reacted positively to what on the surface was a strong nonfarm payrolls report published Friday, as traders believed it was not so hot it would move the needle on Fed policy.
With that in mind, the U.S. producer and consumer prices data for September will be published on Wednesday and Thursday, respectively, with further evidence of easing price pressure required to cement no more rate increases by the Federal Reserve this year.
Then Friday sees the start proper of the third-quarter company-earnings season, when big banks such as JPMorgan Chase
JPM,
Citigroup
C,
and Wells Fargo
WFC,
present their results.
Earnings Watch: Q3 earnings are here: S&P 500 heads toward year of profit declines as JPMorgan, and Delta report this week
Forecasts suggest analysts have become less confident about corporate profitability in recent weeks. Aggregate S&P 500 earnings are expected to decline by 0.3% for the year to Q3 2023, which would mark the fourth consecutive quarter of falling earnings, according to John Butters, senior earnings analyst at FactSet.
Read: Tom Lee points to uncomfortable upside for U.S. stocks of Israel-Hamas conflict
Companies in focus
-
Shares of defense contractors, including RTX Corp.
RTX,
+4.44%
and Lockheed Martin Corp.
LMT,
+7.87% ,
rose after the surprise attack on Israel by Hamas over the weekend. -
Energy companies, including Marathon Petroleum Corp.
MPC,
+1.63%
and Occidental Petroleum Corp.
OXY,
+3.64% ,
saw shares rise as crude prices rallied. -
Walt Disney Co.
DIS,
+1.41%
was in focus after The Wall Street Journal reported, citing sources, that activist investor Nelson Peltz’s Trian Fund Management has upped its stake in a bid to get several more seats on the company’s board. Shares rose 1.3%.
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