On Monday, investor nerves were plainly frayed, owing mostly to rising tensions between Israel and the Palestinian group Hamas. The geopolitical upheaval weighed heavily on US markets, with the S&P 500 and Nasdaq falling in an already precarious climate beset by rising inflation and interest rates. Compounding market fears was a significant increase in crude prices, with WTI oil futures rising 3.5% and Brent futures rising 3.2%.
Gains for Defense and Oil Companies
While global upheaval usually signals difficulty for markets, not all industries are doomed. Lockheed Martin and Northrop Grumman, two major defense contractors, are benefiting from the scenario, with gains of 8.3% and 10.6%, respectively. Marathon Oil and Exxon Mobil both increased by 4% and 3.3%, respectively, in the oil industry. These increases suggest that some traders see the conflict as a driver of positive moves in military and oil equities.
Aviation suffers a setback
In contrast, the aircraft industry suffered hardships as a result of the battle. American Airlines, Delta Air Lines, and United Airlines all canceled flights to Israel, causing their stock prices to plummet. American Airlines dropped over 3%, while United Airlines and Delta Air Lines each lost 2.7% and 3%. The Federal Aviation Administration’s advise on Israeli airspace adds to the industry’s troubles.
Oil Markets and Geopolitical Risks
While Israel and Palestine are not important players in the global oil market, their geographical location could have far-reaching consequences. Oil prices fell this week, but geopolitical instability has reintroduced upward pressure. OPEC+, which includes Russia, has expressed caution in modifying oil output, adding to the supply-demand equation’s complexity. Saudi Arabia’s Energy Minister stated that the cartel would proceed with caution in changing their output plans.
Remarks from the Federal Reserve and Other Financial News
On the home front, Lorie Logan of the Federal Reserve indicated that tighter banking conditions are needed to combat continued inflation. Logan did not directly call for more rate hikes, but he did hint at future policy tightening. Simultaneously, JPMorgan has begun coverage of Arm Holdings, predicting a bright future for the chip maker. Arm Holdings’ shares fell somewhat but are likely to recover due to its leadership position in chip manufacturing.
Prospects for the Near Future
From global concerns to stubbornly high inflation and expected interest rate hikes, the market provides a mix of challenges. Short-term market sentiment is pessimistic given the current composition. While opportunities abound, particularly in the defense and oil industries, traders and investors should exercise care.