[New York Stock Market] Broad Decline Amid Middle East Tensions... International Oil Prices Surge Over 5%

Biden "Israel Discusses Attacks on Iranian Oil Facilities"
WTI Up 5.15% · Brent Crude Up 5.03% Surge
Weekly Unemployment Claims 225,000 Exceed Expectations
Labor Department's September Employment Report on 4th in Focus

The three major indices of the U.S. New York Stock Exchange all closed lower on the 3rd (local time). As tensions in the Middle East reached a peak due to the clash between Israel and Iran, international oil prices surged more than 5% in a single day. Amid the increased market uncertainty caused by instability in the Middle East, investors are focusing on the September employment report to be released the following day.

[Image source=EPA Yonhap News]

On this day in the New York stock market, the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 42,011.59, down 184.93 points (0.44%) from the previous trading day. The S&P 500, focused on large-cap stocks, fell 9.6 points (0.17%) to 5,699.94, and the Nasdaq, centered on technology stocks, declined 6.65 points (0.04%) to 17,918.48.

Concerns over a full-scale war between Israel and Iran caused turmoil in the Middle East, pushing international oil prices up more than 5%. West Texas Intermediate (WTI) crude oil surged $3.61 (5.15%) to close at $73.71 per barrel, while Brent crude, the global oil price benchmark, rose $3.72 (5.03%) to $75.64 per barrel. U.S. President Joe Biden stated that Israel, which suffered a large-scale missile attack from Iran, is considering retaliatory measures including attacks on Iranian oil facilities, which drove oil prices higher. Market uncertainty also expanded, dampening investor sentiment. Simultaneous strikes by port workers in the southeastern U.S. are also adding to the uncertainty.

Michael McCulley, Chief Macro Strategist at State Street Global Markets, said, "International conflicts have returned as a major driver moving the markets," adding, "This could exert pressure for market readjustment and does not look particularly positive for U.S. stocks."

The employment data released that day signaled a gradual weakening of the U.S. labor market. According to the Department of Labor, initial jobless claims for the week of September 22-28 rose by 6,000 to 225,000, exceeding the revised previous week's figure of 219,000 and beating the expert forecast of 222,000 by 3,000. Continuing claims, which count those claiming unemployment benefits for at least two weeks, were 1,826,000 for the week of September 15-21, down 1,000 from the revised previous week's 1,827,000.

The market is focusing on the September employment report to be released on the 4th. According to a Bloomberg survey, nonfarm payrolls are expected to have increased by 146,000 in September, up 4,000 from August's 142,000. The unemployment rate for September is forecast to remain steady at 4.2%. The market will use the employment report to assess the current labor market and economy and to gauge the Federal Reserve's next interest rate cut.

Meanwhile, Austan Goolsbee, President of the Federal Reserve Bank of Chicago and a prominent dove (favoring monetary easing) within the Fed, expressed the view that a significant rate cut is necessary. In an interview with Chicago public radio station WBEZ, Goolsbee said, "Inflation has fallen close to the target level, and the unemployment rate has risen, so the labor market is basically at the level we want," adding, "Interest rates need to come down significantly over the next year." He further explained, "The Fed's focus has shifted from inflation to the labor market," and "We want to prevent the current 4.2% unemployment rate from rising further."

Currently, expectations for a big cut (0.5 percentage point rate cut) at the next Federal Open Market Committee (FOMC) meeting have diminished. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market on this day priced in a 65.4% chance of a 0.25 percentage point rate cut in November, up from 50.7% a week ago. Conversely, the probability of a 0.5 percentage point cut fell from 49.3% to 34.6% over the same period.

Phil Hunt, Chief Economist at Column Picker, said, "Tensions are rising ahead of the jobs report the next day," adding, "If the unemployment rate rises, the market will likely shift back to expecting a 50 basis point (bp = 0.01 percentage point) rate cut, and the Fed's response to this will be crucial."

By individual stocks, AI leader Nvidia surged 3.32%. CEO Jensen Huang expressed confidence in demand for the latest AI chip, Blackwell, boosting the stock price. Levi's fell 7.69% after lowering its annual sales forecast and announcing it is considering selling the clothing brand Dockers. U.S. power semiconductor company Wolfspeed dropped 5.9% after Mizuho downgraded its investment rating from "underperform" to "neutral." Tesla fell 3.35% after reporting third-quarter vehicle delivery results below market expectations the previous day.

Government bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 6 basis points to 3.85%, while the 2-year Treasury yield, sensitive to monetary policy, increased 7 basis points to 3.71%.