[New York Stock Market] Steady Gains Despite Israel-Hamas Clash... Oil Prices Up Over 4%

The three major indices of the U.S. New York stock market closed slightly higher on Monday, the 9th (local time), despite the armed conflict between Israel and the Palestinian militant group Hamas. The dovish remarks (preference for monetary easing) made by Federal Reserve (Fed) officials, released amid rising long-term Treasury yields, were interpreted as reassuring investors. Geopolitical risks escalated, causing international oil prices to surge by over 4%.

At the New York Stock Exchange (NYSE) that day, the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 33,604.65, up 197.07 points (0.59%) from the previous session. The S&P 500, focused on large-cap stocks, rose 27.16 points (0.63%) to 4,335.66, and the tech-heavy Nasdaq index increased by 52.90 points (0.39%) to close at 13,484.24.

All sectors in the S&P 500 advanced. In particular, energy-related stocks showed a notable rise as oil prices soared. Halliburton rose 6.77% compared to the previous session. ExxonMobil increased by 3.5%, and Occidental Petroleum went up 4.53%. Lockheed Martin, an aerospace and defense company, also jumped nearly 9% due to the Israel-Palestine conflict. On the other hand, major airlines' stocks weakened as Israeli flights were suspended. American Airlines, United Airlines, and Delta Air Lines all fell by over 4%. Carnival, a leading cruise stock, also dropped by more than 4%.

Anna Rasvan, Chief Investment Officer at CBIZ Investment Advisory Services, described the rise in energy and defense stocks as a "knee-jerk reaction (conditioned reflex)" to CNBC, adding, "The dust is settling after being kicked up, and it will take a few days to understand the actual impact."

[Image source=Reuters Yonhap News]

Investors monitored the increased financial market uncertainty caused by the Israel-Palestine conflict while awaiting key indicators and corporate earnings this week. Hamas launched a surprise attack on Israel in the early hours of the 7th, the Jewish Sabbath, and Israel has retaliated with airstrikes. The armed conflict has entered its third day, with rising casualties.

Mohamed El-Erian, Chief Economic Advisor at Allianz, appeared on CNBC's Squawk Box that day, stating, "The current market reaction suggests that investors believe the conflict between Israel and Hamas will calm down," but he identified whether tensions escalate further as a key factor. In that case, he warned that geopolitical uncertainty would increase globally. He expressed concern, saying, "If other parties get involved, inflationary pressures will increase, and the global economy will weaken further," adding, "The market will find it difficult to cope with this."

The dovish remarks from Fed officials that day helped ease investors' concerns, which had been heightened by the recent rise in Treasury yields. Fed Vice Chair Philip Jefferson said in a speech to the National Association for Business Economics, "We recognize the tightening of financial conditions due to rising Treasury yields and will keep this in mind when assessing future policy directions." Earlier, Dallas Fed President Lorie Logan, who had voiced hawkish views, also mentioned the recent surge in long-term Treasury yields and left open both the possibility of Fed rate hikes and pauses.

This week, inflation indicators such as the Consumer Price Index (CPI), which could influence the Fed's rate decisions, are scheduled for release. Wall Street estimates that the September CPI, to be announced on the 12th, rose 0.3% month-over-month and 3.6% year-over-year, a slowdown compared to the previous month's increases of 0.6% and 3.7%, respectively. The Producer Price Index (PPI) for September, released earlier, is also expected to have eased. Last week's employment report showed solid job growth, but a slowdown in wage growth, a key inflation factor, brought relief to investors.

The minutes of the September Federal Open Market Committee (FOMC) meeting will be released on the 11th. Remarks from Fed officials including Board member Christopher Waller, Minneapolis Fed President Neel Kashkari, San Francisco Fed President Mary Daly, Board member Michelle Bowman, and Atlanta Fed President Raphael Bostic are also expected.

The market currently favors a rate hold in November. According to the Chicago Mercantile Exchange (CME) FedWatch tool, as of that afternoon, federal funds futures priced in an over 88% probability that the Fed will keep rates unchanged in November. The probability of a "baby step" (a 0.25 percentage point rate hike) was around 11%. There are two remaining FOMC meetings this year, in November and December.

Meanwhile, starting this week, earnings announcements from major banks such as JPMorgan, Wells Fargo, and BlackRock, as well as New York Stock Exchange-listed companies, will begin in earnest. Earnings reports from PepsiCo, Domino's Pizza, Walgreens, and Delta Air Lines are also scheduled. Historically, the fourth quarter before a presidential election has shown strong market performance, but this time, market uncertainty is high due to the Fed's outlook for prolonged high interest rates and rising Treasury yields. However, strong corporate earnings could exert upward pressure on the stock market.

In observance of Columbus Day, the bond market was closed that day. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," rose more than 1.4% to around 17.7. The U.S. Dollar Index, which measures the dollar's value against six major currencies, showed a slightly higher trend around 106. El-Erian warned that investors face three threats: a sharp rise in Treasury yields, rising oil prices, and a strong dollar, stating, "Historically, these three have broken something."

As geopolitical tensions escalated, oil prices surged more than 4% that day. On the New York Mercantile Exchange, November delivery West Texas Intermediate (WTI) crude oil closed at $86.38 per barrel, up $3.59 (4.34%) from the previous session. This was the highest closing price since October 3. December Brent crude also rose more than 4%, closing at $88.15 per barrel.