Stocks Halt Gains, Oil, Treasuries Rally As Investors React to Israel-Hamas Conflict: What's Driving Markets Monday?

Markets kicked off the week with heightened volatility due to the ongoing conflict between Israel and the Palestinian militant group Hamas.

Israel’s defense minister announced a comprehensive blockade on the Gaza Strip, encompassing even food and water restrictions.

Crude oil became the most reactive asset to the conflict as markets resumed trading overnight, with WTI surging nearly 4% by midday in New York.

Major stock indices flirted with negative territory as investor risk appetite waned due to renewed uncertainty in the Middle East. In contrast, bonds served as safe havens, with Treasury yields declining across the yield curve. Notably, both the two- and 10-year yields dropped by 13 basis points.

Cues From Monday’s Trading:

The S&P 500 was 0.1% lower at the start of the week, while blue-chip stocks in the Dow Jones Industrial Average managed to hold steady.

The tech-heavy Nasdaq 100 slipped, down 0.4%, while small caps in the Russell 2000 surprisingly outperformed, rising 0.1%.

US Index Performance On Monday

Analyst Color:

The real takeaway from this week, the first of October, is that a terrible September may be behind us, said Brad McMillan, chief investment officer at Commonwealth Financial Network. The real economy is in good shape and the markets are processing rising rates and are now showing signs they can rally, even as rates move higher, the analyst said.

“And if inflation keeps trending down (and we will find that out next week), then for all the doom and gloom, the foundation is still solid,” he added.

Monday’s Trading In Major US Equity ETFs

• The SPDR S&P 500 ETF Trust SPY was 0.1% lower to $429.38.
• The SPDR Dow Jones Industrial Average ETF DIA was 0.1% higher to $334.40.
• The Invesco QQQ Trust QQQ fell 0.3% to $363.68, according to Benzinga Pro data.

Looking at S&P 500 sector ETFs:

• The Energy Select Sector SPDR Fund XLE was the outperformer, up 3.02%.
• The Consumer Discretionary Select Sector SPDR Fund XLY was the laggard, down 1%.

Upcoming Economic Data:

The unfolding week’s economic calendar is all about inflation, which has a huge bearing on what the Federal Reserve will do when it meets for two days beginning on Oct. 31. The consumer price inflation report for September is due on Thursday. The producer price inflation report, also for September, is due on Wednesday, and the University of Michigan’s preliminary October consumer sentiment data due on Friday are among the key reports on investor radars.

Traders may also keep an eye on the Fed speeches scheduled for the week and the minutes from the September Federal Open Market Committee meeting, where the central bank led by Chair Jerome Powell kept the fed funds rate unchanged at 5.25%-5.5%.

Philip Jefferson, the vice chair of the Fed’s board of governors, is due to speak at 1:30 p.m. EDT.

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Stocks In Focus:

• Walt Disney Co. DIS rose over 1.4% after a Wall Street Journal report said activist investor Nelson Peltz upped his stake in the company and will seek more board seats.

• Nvidia Corp. NVDA fell 2.41% amid rumors of Microsoft Corp. MSFT readying an in-house AI chip.
  
• Energy stocks Exxon Mobil Corp. XOM, ConocoPhillips COP and Chevron Corp. CVX all rallied following the spike in oil prices in the aftermath of the developments in the Middle East.
  
• Airline and cruise line stocks, including American Airlines Group Inc. AAL, Delta Air Lines Inc. DAL, Carnival Corp CCL, and Norwegian Cruise Ltd. NCLH, all experienced declines of more than 4% due to the surge in oil prices.
  
• Defense stocks Lockheed Martin Corp. LMT, L3Harris Technologies Inc. LHX and Northrop Grumman Corporation NOC rallied 8%, 9% and 11%, respectively, amid fears concerning a looming war between Israel and Hamas.
  
• Mirati Therapeutics, Inc. MRTX slipped over 5% despite the company announcing a deal to be bought by Bristol-Myers Squibb Co. BMY for $5.8 billion, including $4.8 billion or $60 per share in cash, and a non-tradeable Contingent Value Right. potentially worth $12 per share in cash, representing an additional $1 billion of value opportunity.

Commodities, Bonds, Other Global Equity Markets:

Crude oil rose 4.2%, with a barrel of WTI-grade crude trading at $85. The United States Oil Fund ETF USO was 3.7% higher to $76.8.  

The iShares 20+ Year Treasury Bond ETF TLT was 1.2% higher for the day. 

The dollar rose, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.2%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, was 0.4% lower to 1.0540.

European equity indices had a negative session. The SPDR DJ Euro STOXX 50 ETF  FEZ fell 1.6%. 

Gold rallied 1% to $1,849/oz, while silver rose 0.8% to $21.75. Bitcoin BTC/USD was 1.9% lower to $27,421.

Staff writer Piero Cingari updated this report midday Monday. 

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