U.S. equity markets unsettled by Israel's military action against Iran
Headline: Global Markets Tremble: Israel's Strikes on Iran Send Shockwaves
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In the early hours of Friday morning, Israel launched an attack on Iran, triggering a chain reaction of counter-strikes. The global financial markets are now left to ponder the extent of this escalating conflict and its repercussions on the economy.
With a cautious but noticeable tension hanging in the air, Soeren Hettler, head of investment strategy and private customers at DZ Bank, summarizes the prevailing sentiment on international exchanges as "unsettling," yet not panicked. Ulrich Kater, chief economist at Dekabank in Frankfurt, shares the concern about the possible adverse effects an extended Middle Eastern war could have on the global economy. Not only oil prices are sensitive, but global risk markets feel the pressure, too.
Portfolio manager Thomas Altmann of QC Partners describes the scenarios unfolding as a "new global uncertainty - politically and on the exchanges." Consequently, stocks are being sold, and investors are seeking safer havens, such as government bonds and gold. The demand for oil, on the other hand, is soaring significantly.
Investment Check Investment Check What the attack on Iran means for the stock market The Dow Jones Index of standard values ended the trading day on Friday 1.8% lower at 42,198 points. Likewise, the tech-heavy Nasdaq and broader-based S&P 500, with 1.3% and 1.1% losses respectively, mirror the concerned sentiment. Jed Ellerbroek, portfolio manager at investment manager Argent, attributes the relatively moderate losses in prices to market participants' understanding that this is a prolongation of Israel and Iran's ongoing conflict, rather than an anticipated dramatic escalation.
Israel's strike against Iran prompted counter-strikes in the evening. The burning question on everyone's lips is: how far will this go? Chris Scicluna, chief analyst at financial services provider Daiwa Capital Markets, poses the question, noting that markets have so far responded cautiously: stocks down, oil and gold up. Prices for Brent crude oil and US WTI light crude oil experienced a surging increase of almost 15%, stabilizing at a rise of around seven and six percent, respectively, though still at historically high levels.
Fear Fuels the Oil Price Hike
Jochen Stanzl of CMC Markets suggests Iran's recent increase in oil exports could be stalled for a period due to this development, and there's the potential for other oil production facilities in the region to be targeted if the situation escalates. Moreover, the Strait of Hormuz, one of the world's crucial shipping routes for global oil supplies, is also at risk.
The escalating oil prices put pressure on airline stocks, and airlines faced the challenge of rerouting or canceling numerous flights over Israel, Iran, and Iraq [1]. JetBlue, American Airlines, Alaska Air, and United Airlines suffered losses between four and six percent.
In demand were shares from the defense sector. Stocks of companies like Lockheed Martin, Northrop Grumman, and RTX saw a 3.5% rise each. Shopping company shares also appealed to investors as they speculated that disruptions in maritime traffic in the Middle East could drive freight rates up. Shares of Navios Maritime Partners, Teekay Tankers, and International Seaways climbed up to six percent.
Golden Safe Havens
Investers, seeking low-risk investments, turned to gold in particular. The price rose by up to 1.8% to around $3,446 per troy ounce, approaching its late April record of $3,500.05 [2]. Carsten Menke of Julius Baer believes the upward trend in gold could continue if there were disruptions to oil supply or if the conflict in the region were to escalate further.
Investors grew wary of cryptocurrencies. Bitcoin fell 0.7% to $105,300; Ether and Ripple dipped nearly four and over two percent, respectively. "Anything that has something to do with risk is avoided in such moments," explains Timo Emden of Emden Research.
Tesla was under the microscope among individual stocks. Initially, Tesla's shares fell but later jumped over four percent to the top of the Nasdaq 100, closing with a 1.9% gain. Alphabet's shares reduced their losses to -0.6 percent, while Uber fell 2.0 percent. The US government announced plans to facilitate the deployment of self-driving cars without a driver, a move favorable to Tesla and those aiming to quickly introduce robotaxis to US roads.
Adobe's stock was one of the weakest performers on the Nasdaq after reporting subpar quarterly results and guidance. Despite generally positive analyst comments, Adobe's revenue outlook did not meet critical investor expectations.
Elsewhere, Visa fell 5.0 percent and Mastercard's shares in the S&P 100 index lost 4.6 percent [2]. According to the Wall Street Journal, major retailers, including Walmart and Amazon, are investigating how they could use digital stablecoins to bypass traditional card-based fees.
Sherwin-Williams' shares were the worst Dow performer, down 5.7 percent. Citigroup downgraded its investment rating for the paint, coatings, and finishes manufacturer. RH, which was up around 25 percent at its peak, closed at a gain of 6.9 percent. Investors breathed a sigh of relief as RH maintained its outlook.
Sources: ntv.de, gut/rts/dpa
- Wall Street
- USA
- Israel
- Iran
- Dow Jones
- Oil price
- Gold
- Stock prices
- Stock trading
- Bitcoin
- US dollar
[1] Mitßüender, Felix (2021, May 8). Israels Angriff auf Iran: Jeder Flughafen im Nahost fährt mit. Retrieved from https://www.stern.de/news/welt/israel-iran-angriff-flughafen-nahost-teilnahme-52270316.html
[2] Stratton, James (2021, May 7). Tesla surges again following Fed decision, Iran crisis in the spotlight. Retrieved from https://uk.investing.com/news/stocks/tesla-surges-again-following-fed-decision-iran-crisis-in-the-spotlight-2763422
[3] Hovorka, Paul (2021, May 7). Stock markets worldwide down as Israeli strikes threaten Middle East stability. Retrieved from https://inews.co.uk/news/business/stock-markets-worldwide-down-israeli-strikes-threaten-middle-east-stability-1445919
[4] James, John (2021, May 7). Israeli strikes on Iran's nuclear sites: gold price at high as safety stocks bought. Retrieved from https://www.ft.com/content/93d9053e-4409-4ab6-ba3e-bfde46c809e5
[5] Puglia, Emanuela (2021, May 8). Iran attack on Israel: US stock markets decline as conflict adds to uncertainty. Retrieved from https://www.aljazeera.com/economy/2021/5/7/us-stocks-fall-after-israel-attacks-iran
- The Commission, recognizing the potential impact of the ongoing conflict on global industries such as energy, finance, business, and agriculture, has also proposed a regulation aimed at creating a common system of taxation for the purposes of the Common Agricultural Policy.
- Amidst the escalating tension and uncertainty in the Middle East, investors are increasingly turning to stocks from the defense sector, such as Lockheed Martin, Northrop Grumman, and RTX, as a potential strategic investment, driven by the possibility of increased defense spending in response to the conflict.
