Wall Street exhibits apprehension towards the Middle East situation.
Due to international political issues, investor confidence on Wall Street is dwindling. Major stock indices are faltering, and oil prices are just heading upwards.
Following gains in previous trading sessions, selling was the main trend at the beginning of this week on Wall Street. After the strong U.S. employment report on Friday alleviated concerns of a U.S. economic downturn, investors now seemed uneasy about potential escalations in the Middle East. Rising interest rates also affected the stock market negatively. Furthermore, a weather system negatively impacted insurance stocks. The Dow Jones Index dipped 0.9% to reach 41,954 points, while the S&P-500 and Nasdaq Composite declined 1.0% and 1.2%, respectively. There were 759 winners (previously 1,753) and 2,070 losers (previously 1,049) on the NYSE. The number of unchanged stocks remained at 41 (previously 49).
"Investor risk appetite took a hit due to rising geopolitical tensions in the Middle East, despite improved overall economic data. This was particularly evident in the U.S. employment report last Friday, where fears of a recession eased again," analyzed Jim Reid of Deutsche Bank.
Traders also pointed to rising interest rates as a hurdle for stocks. With positive employment data, the need for U.S. Federal Reserve intervention to support the economy decreased. Majority of traders now anticipate a 0.25% interest rate hike in November, with a small group expecting a renewal of the current rate. A 0.5% cut seemed unlikely.
Interest rates rise again
In the bond market, interest rates continued to increase after sharp increases last week. Ten-year note yields rebounded over the 4% mark once again.
On the foreign exchange market, the currency remained mostly unchanged. The dollar index remained stable. "Looking forward to the next three weeks, we see no obvious catalyst that could reverse the dollar's trend, and retention of recent dollar gains seems more likely," ING strategists predicted.
Oil prices edged higher on the anniversary of the Hamas attack on Israel. Prices for WTI and Brent crude increased by approximately 4%. An Israeli attack on Iranian oil facilities was seen as a possible response to Iran's previous attack on Israel.
Rising interest rates caused the gold price to dip slightly. Moreover, expectations of interest rate cuts weighed down the precious metal.
"Milton" affects insurance values
Shares of insurance companies and reinsurers took a hit. As Hurricane "Milton" intensified into a Category 5 storm expected to hit densely populated areas in the U.S. state of Florida, the insurance sector in the S&P-500 fell by 3.1%. Shares of reinsurers RenaissanceRe and Everest dropped by 9.3% and 8.4%, respectively. Many primary insurers – companies that offer insurance to consumers and businesses and purchase reinsurance themselves – also experienced heavy selling. Shares of Allstate, Chubb, Travelers, and Progressive dropped by up to 4.9%.
Pfizer grew 2.2%. Activist investor Starboard Value reportedly purchased a $1 billion stake in Pfizer and pressured the company for improvements in research and development.
Energy giant Chevron (+0.3%) sold its stakes in oil sands and shale projects in the Canadian province of Alberta for $6.5 billion to Canadian Natural Resources (+3.2%). Negative comments from analysts pushed Amazon down by 3%. Wells Fargo downgraded Amazon's stock.
Arcadium Lithium soared by about 35.4%. Mining giant Rio Tinto is currently in talks to acquire the company. Shares of Super Micro Computer jumped 15.8%, with investors hoping for multi-billion dollar contracts following the company's recent statements.
DuPont dropped by 1.8% after Barclays issued a downgrade. Duckhorn Portfolio surged by more than 100%, as the wine company was being acquired by Butterfly Equity in a $1.95 billion deal. Lucid climbed by 2.4%. The electric vehicle maker delivered significantly more vehicles in the third quarter than analysts had anticipated.
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Despite the improved employment report alleviating fears of a U.S. economic downturn, the uncertainty surrounding potential escalations in the Middle East has caused investors to be cautious on Wall Street. This was reflected in the decline of major stock indices, such as the Dow Jones Index, S&P-500, and Nasdaq Composite, on the opening of this week.
Furthermore, Wall Street traders are closely monitoring oil prices, which edged higher on the anniversary of the Hamas attack on Israel, given the potential impact of geopolitical tensions on energy markets.
