(Bloomberg) — The ongoing rally in stocks came to a halt Tuesday as investors retreated to safer corners of the market as the conflict in the Middle East escalated.
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Port 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 its armed forces into Lebanon. According to an earlier report, the US is actively supporting preparations to defend Israel.
Gold briefly climbed above $2,670 an ounce, while oil rose above $71 a barrel.
“The markets are in a wait-and-see mode,” said Kathleen Brooks, director of research 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 expects stocks and technology stocks to recover. The technology sector was the worst performer during the session, with Apple Inc. and Nvidia Corp. fell more than 3%. The Nasdaq 100 pared a loss of more than 2% to a decline of 1.0% in afternoon trading. The S&P 500 fell 0.62%, while Treasuries held on to an advance.
The clash overshadowed mixed signals from Tuesday’s economic data. The US ISM price index fell the most since May 2023, while US job openings rose to a three-month high in August, contradicting other data indicating weakening demand for workers. Government bond yields remained lower, while the 10-year yield fluctuated around 3.74%.
“Today’s reports should weigh on 10-year yields, the dollar and employment stocks, although payrolls have more influence,” said Evercore ISI’s Stan Shipley, referring to Friday’s long-awaited employment data. “However, geopolitical stories from the Middle East are more important for the government bond markets.”
The dock workers’ strike also sparked unrest, as the longer traffic at major U.S. container ports is closed, the greater the economic losses. JPMorgan Chase & Co. estimates that the shutdown will cost as much as $4.5 billion per day.
Wall Street’s fear gauge – the VIX – spiked higher, hitting a key level that usually signals more volatility in the future before retreating.
Tuesday begins a historically positive, but often volatile, period for stocks. The S&P 500 set its 43rd closing record on Monday, staging a third-quarter rally that capped its longest winning streak since 2021.
“October was a much friendlier month for bulls from start to finish, but it wasn’t a walk in the park in between,” said Bespoke Investment Group strategists. According to Bespoke data going back to 1945, the average intra-month decline of around 4.6% is the largest of any month.
According to Michael Kantrowitz, chief investment strategist at Piper Sandler & Co., stocks reflect “an impeccable economic outlook.”
“The problem I see with any meaningful upside for stocks here is that there is essentially no risk priced into stocks,” he said. “When rockets fly, markets will react even more violently.”
In the money markets, swap traders say there is a one in three chance that the Fed will cut another half point in November, but that could turn out differently than expected, Larry Fink warned.
“The amount of easing in the forward curve is crazy,” said Fink, the CEO of BlackRock Inc. in an interview with Bloomberg Television. “There is room for more easing, but not as much as the forward curve would indicate.”
Elsewhere, eurozone inflation slowed below the European Central Bank’s 2% target for the first time since 2021, prompting money markets to increase expectations of another quarter-point cut by the ECB this month. ECB President Christine Lagarde said the bank is increasingly optimistic about curbing price pressures.
Main events this week:
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South Korea CPI, S&P Global Manufacturing PMI on Wednesday
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Fed speakers include Thomas Barkin of Richmond, Beth Hammack of Cleveland, Alberto Musalem of St. Louis and Fed Governor Michelle Bowman on Wednesday
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U.S. Nonfarm Payrolls, Friday
Some of the major moves in the markets:
Stocks
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The S&P 500 was down 0.6% as of 2:56 p.m. New York time
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The Nasdaq 100 fell 1.1%
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The Dow Jones Industrial Average was little changed
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The MSCI World Index fell 0.6%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.6% to $1.1070
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The British pound fell 0.7% to $1.3283
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The Japanese yen was little changed at 143.71 per dollar
Cryptocurrencies
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Bitcoin fell 2.8% to $62,022.46
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Ether fell 4.3% to $2,500.22
Bonds
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The yield on ten-year government bonds fell by four basis points to 3.74%
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The German ten-year yield fell by nine basis points to 2.04%
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The British ten-year yield fell by six basis points to 3.94%
Raw materials
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West Texas Intermediate crude rose 2.9% to $70.15 a barrel
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Spot gold rose 1% to $2,660.59 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Alexandra Semenova, Allegra Catelli, Alice Atkins, Cecile Gutscher, and Margaryta Kirakosian.
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