Iranians hold pictures of Hezbollah leader Hassan Nasrallah, who was killed in an Israeli air strike on Beirut's southern suburbs on September 27, during an anti-Israel protest in Palestine Square in Tehran (HOSSEIN BERIS/Getty Images)

Defense up

Markets in retreat as Middle East risks mount

Oil up, defense stocks up, stocks down.

Luke Kawa

10/1/24 10:56AM

Financial markets are on pins and needles after multiple news outlets reported that Iran is planning a missile strike on Israel.

This comes on the heels of Israel’s dismantling of Hezbollah’s leadership in recent weeks and invading Lebanon to further strike at the Iranian proxy group.

🚨🚨🚨Senior White House Official tells me: “The United States has indications that Iran is preparing to imminently launch a ballistic missile attack against Israel"
— Barak Ravid (@BarakRavid) October 1, 2024

What’s happening:

Stocks are down, with both small caps and tech stocks underperforming.

Defense stocks – as proxied by the iShares US Aerospace & Defense ETF – are one of the few groups that is up, outperforming the S&P 500 by about 1.5% in early trading.

Oil jumped a couple bucks, with front-month West Texas Intermediate futures up in excess of 3% shortly after 10:00am ET. Israel is not anything resembling a major oil producer. But the thinking here is that any response by Israel could impair Iranian productive capacity and/or cause Western nations to enhance sanctions on the Gulf nation or enforce existing sanctions more stringently.

Commodity prices are the main channel through which geopolitical strife can have economic and financial market ramifications that stretch far beyond the combat zone. Russia’s invasion of Ukraine accentuating inflationary pressures via feared loss of oil output and a real loss of natural gas – at a time when supply chains were already stressed and demand was solid – is the most recent obvious example to point to.

Often, fading knee-jerk reactions to geopolitical news can be profitable in financial markets – if all the events that doomsayers said would have led to World War III actually did, there’d be more of those than James Bond flicks by now.

However, even at times when there appears to be a limited economic impact, geopolitical flare-ups can still be an excuse for profit-taking – particularly when stocks are richly valued. And in the here and now, this may change the political calculus in the US ahead of next month’s election, with foreign policy potentially assuming more prominence as voters head to the polls.

Gold got a bump on the news, up about 1% on the session.

The US dollar is up against major currencies, with a much more pronounced bout of weakness for the Israeli shekel as these reports surfaced.

Tasha Matsumoto

Stocks close lower, trimming steeper losses as oil retreats

Oil prices fell after Israeli Prime Minister Benjamin Netanyahu said his country is helping with US efforts to open the Strait of Hormuz.

Nate Becker5h

Stocks get a jolt as Netanyahu says Israel is helping US efforts to open Strait of Hormuz

Israeli Prime Minister Benjamin Netanyahu said in a press conference that his country is helping with US efforts to open the Strait of Hormuz, putting a jolt into stocks.

The S&P 500, which had been solidly negative for most of the day, turned slightly green after the remarks. The rebound lost a bit of steam shortly thereafter, but stocks still remained higher than they were before Netanyahu’s comments.

“Israel is helping, in its own way, in intel and other means, the American efforts to open the Strait of [Hormuz],” Netanyahu said, according to a video of the press conference.

Here are another few interesting headlines coming across from the presser, per Reuters:

*NETANYAHU: IRAN HAS NO CAPACITY TO ENRICH URANIUM OR MAKE BALLISTIC MISSILES AFTER 20 DAYS OF WAR

*NETANYAHU: CAN’T DO A REVOLUTION FROM THE AIR, THERE NEEDS TO BE A GROUND COMPONENT AS WELL

*NETANYAHU: ISRAEL ACTED ALONE AGAINST SOUTH PARS

*NETANYAHU: TRUMP ASKED US TO HOLD OFF ON FUTURE SUCH ATTACKS

And here’s how the market reacted instantly after his comments:

Stocks Slump as Energy Surge Fuels Inflation Fears: Markets Wrap

“Israel is helping, in its own way, in intel and other means, the American efforts to open the Strait of [Hormuz],” Netanyahu said, according to a video of the press conference.

Here are another few interesting headlines coming across from the presser, per Reuters:

*NETANYAHU: IRAN HAS NO CAPACITY TO ENRICH URANIUM OR MAKE BALLISTIC MISSILES AFTER 20 DAYS OF WAR

*NETANYAHU: CAN’T DO A REVOLUTION FROM THE AIR, THERE NEEDS TO BE A GROUND COMPONENT AS WELL

*NETANYAHU: ISRAEL ACTED ALONE AGAINST SOUTH PARS

*NETANYAHU: TRUMP ASKED US TO HOLD OFF ON FUTURE SUCH ATTACKS

And here’s how the market reacted instantly after his comments:

Matt Phillips7h

Gold tumbles as market sees Fed shifting toward inflation fighting

Gold and gold miners tumbled Thursday, as the rolling Iran war energy crisis revived worries about inflation and pushed the market to take additional rate cuts this year off the table.

Gold (SPDR Gold Shares ETF) futures dropped roughly 6% shortly after 12 p.m. ET, hammering share prices for miners Newmont and Freeport-McMoRan. Silver (iShares Silver Trust) futures were down nearly 9%.

The decline in precious metals came alongside another sharp rise in energy prices. US benchmark crude oil (United States Oil Fund LP) and natural gas prices both jumped more than 3% after major Iranian attacks on Qatari energy infrastructure. US retail gasoline prices tracked by the American Automobile Association hit $3.884, up 33% from the end of last month, when a joint US-Israeli attack on Iran ignited hostilities.

Normally, gold prices are seen as a hedge on inflation, which might suggest that they should rise alongside expectations for persistent price increases.

But the speed of the Iran war energy shock — which will add to inflationary pressures already visible in recent economic reports, such as this week’s Producer Price Index, and could become a political problem for the Trump administration — has nudged traders to change their their views on whether the Federal Reserve would be able to deliver the rate cuts widely expected just a few weeks ago.

Yields on shorter-maturity US Treasury notes shot higher Thursday, reflecting expectations for tighter monetary policy. And prices in the market for federal funds futures suggest traders no longer see the US central bank cutting interest rates this year at all. (Early this month, market pricing implied expectations for two more cuts this year.)

On Thursday, yields fell on longer-term US government securities, such as the US 30-year bond. That suggests the market thinks a Fed shift toward inflation fighting and away from rate cutting would likely result in some decline in growth and/or inflation, helping to explain the drop in precious metals prices, as there would be less of a need for inflation hedges in such a scenario.

Bond Traders No Longer Price In Any Chance of Fed Cut in 2026

Normally, gold prices are seen as a hedge on inflation, which might suggest that they should rise alongside expectations for persistent price increases.

J. Edward Moreno8h

Novo says FDA has approved high-dose Wegovy shot

The Food and Drug Administration approved Novo Nordisk’s high-dose Wegovy shot, the company announced on Thursday.

Wegovy HD, a once-weekly 7.2-milligram injection, helped patients lose 20.7% of their body weight after 72 weeks, putting it in line with Eli Lilly’s competitor drug, Zepbound. By comparison, Wegovy typically has a maximum dose of 2.4 milligrams, which resulted in 15% weight reduction over 68 weeks in trials.

Wegovy HD was the first drug to be approved through the FDA’s new priority voucher system. This comes as Novo, despite being early to the GLP-1 boom, has been outpaced in sales by Lilly. The company released a pill version of Wegovy in January, which has shown strong early uptake, though new competitor products are set to debut this year and next.

The stock is down about 1.6% for the day, but was down nearly 3% before the announcement.

Tasha Matsumoto

Crudely speaking

What we talk about when we talk about crude oil

While both WTI and Brent are light and sweet crude, differences in geography and chemical composition influence the Brent-WTI spread.