Markets react as tensions rise in the Middle East
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Oct 1 (Reuters) -Increasing geopolitical tensions sent U.S. investors out of stocks and into safe havens such as Treasuries and the dollar on Tuesday, after the U.S. warned it had indications that Iran may be planning a ballistic missile strike against Israel.
The S&P 500 .SPX was down 0.9% while the Nasdaq Composite Index was off 1.6%. The dollar =USD was up 0.5% against a basket of currencies. The U.S. benchmark 10-year Treasury was up about two thirds of a point US10YT=TWEB and its yield wasdown about 8 basis points at 3.72%. The benchmarkU.S. crude CLc1 contract was up 3.8% at $70.75 per barrel. Spot gold XAU= was up 1.15% around $2,665.00 per ounce.
QUOTES:
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, CFRA RESEARCH, ALLENTOWN, PA.
“It sort of reminds me of October 1956, when ahead of those elections you had a big selloff. Gamal Nasser seized control of the Suez Canal for Egypt, prompting a response by Britain and France, and at almost the same time, Soviet tanks went rolling into Budapest to quell Hungary’s brief experiment with some kind of revived democracy. But for now, people may be selling but they’re not panicking. The Dow is down only a half a percentage point at this stage, and we’re down less than 2% on the Nasdaq. But we are seeing a flight to quality, like utilities and healthcare and consumer staples, all of which are either higher or down less than the market. Gold and silver – classic stores of value in times of crisis – are also moving higher. But we’re not seeing tremendous changes higher or lower. I think people are adjusting their positions, out of a sense that they need to be prepared for whatever happens next.”
“The fact that the US is already commenting on an imminent retaliatory attack by Iran suggests, if it happens, it will be more in line with the well telegraphed and calibrated attack in April 2024, rather than the start of something more devastating or inflammatory.”
“But the market, which in the example of oil is not pricing in much disruption from a region-wide conflict, is highly sensitive to any scenario worse than this.”
GILES COGHLAN, MANAGING DIRECTOR, GCFX, BILSTON, ENGLAND
"It's a classic risk-off move on the headlines that Iran intends to carry out a ballistic missile attack against Israel imminently."
"That's why we're seeing equity markets sell off and we're seeing strength coming to the yen and the Swiss franc and the dollar."
"However, it's unlikely to last because when they've (Iran) attacked in the past, it quickly fizzled out."
ANDREW GRAHAM, MANAGING PARTNER AND FOUNDER, JACKSON SQUARE CAPITAL, SAN FRANCISCO
“Oil prices are higher today; gold prices are higher. Those are the kind of reactions you’d expect to see in response to headlines about tensions in the Middle East. But the fact that the stock market is down also has something to do with the fact that it’s trading at a richly-valued multiple. That makes it hard to absorb a sudden news shock like this; events become more meaningful when the market is richly valued. Plus, we’re heading into a jobs report on Friday. People are worried overall about a spike in volatility.”
ALLAN SMALL, SENIOR INVESTMENT ADVISOR, ALLAN SMALL FINANCIAL GROUP WITH IA PRIVATE WEALTH, TORONTO
"Markets had gotten used to a lot of geopolitics as Israel continued its fight in Gaza and with Hamas; it seemed like that wasn't affecting markets much. It seemed like a lot of the fighting had been done already and that was winding down and then here we are - a new spark comes up. The market will sell off on that headline, whether or not it rebounds today or tomorrow depends on whether the headline coming out now is valid or not.
"If the war escalates, that of course is not good for markets but would be good for the price of oil, gold and those stocks though most of the other stocks would probably sell off like we're seeing today."
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON
"I think the initial market reaction to the news has been pretty much exactly as one would have expected, with a knee-jerk risk-off vibe sweeping across the board, as the dollar vaulted to day-highs, along with gold and long-end Treasuries, while stocks and higher beta G10s slumped."
"The key question now is the degree to which these initial moves are consolidated, or pare back, which hinges almost entirely on whether an Iranian attack is indeed forthcoming. Markets, hence, are likely to display an incredibly high sensitivity to incoming geopolitical news flow in the coming hours. Though, if recent reports are to be believed and the aforementioned attack is similar in scale to that delivered in April, this could be greeted with a sigh of relief, and not be interpreted as a significant sign of escalation beyond what has already been seen."
ANTHONY SAGLIMBENE, CHIEF MARKET STRATEGIST, AMERIPRISE FINANCIAL, TROY, MICHIGAN
"The situation in the Middle East continues to evolve rapidly. With Iran and Lebanon being drawn into the Middle East conflict more directly, reactions today are playing out in higher crude and gold prices. While rising geopolitical tensions create elevated market uncertainty and anxiety over the near term, investors will likely measure the longer-term impact of growing Middle East conflict through potential impacts on oil supply."
WALTER TODD, CHIEF INVESTMENT OFFICER, GREENWOOD CAPITAL, GREENWOOD, SOUTH CAROLINA
"It's obviously risk-off. People will buy up Treasuries, sell stocks, buy oil - all the normal things you would think of in this situation."
"This highlights the circumstance of this market in the fact that there are a myriad of risks out there, whether that's slowing employment in the U.S., the geopolitical tensions in Ukraine, the Middle East. And the market seems very mispriced for any flare-up of any of those risks... It's vulnerable to shocks like this."
LOU BASENESE, PRESIDENT AND CHIEF MARKET STRATEGIST, MDB CAPITAL, NEW YORK:
"The markets are acting predictably. In the lead-up to and outbreak of war or geopolitical crises, major indexes sell off reflexively, dropping an average of 5% to 7%. The selling pressure typically lasts for about two weeks. Within another two weeks, though, they typically recover. So trading around the fear or outbreak is a risky proposition at best.
"That said, the nature of each conflict can have more lasting impacts on individual sectors or areas of the market, like oil and defense stocks. In this case, we'd be hard pressed to find anyone that disagrees that an Iranian attack would be a major escalation and indication of a protracted conflict, which should keep driving both oil and defense stocks higher."
Reporting by Reuters Global Finance & Markets team, Editing by Rosalba O'Brien
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