Quiver Quantitative - Worldwide stocks experienced a downturn as oil prices surged to $90 a barrel due to increasing concerns over the escalation of the Israel-Hamas conflict in the Middle East. The S&P 500 saw a nearly 1% drop, momentarily crossing its 200-day moving average, an indicator some analysts see as a precursor to further losses. Significant underperformers included banks like Regions Financial (NYSE:RF), which warned of decreasing net interest income, and American Express (NYSE:AXP), which reported disappointing card volumes. Additionally, major companies like Tesla Inc (NASDAQ:TSLA). are poised for their most challenging week since the end of last year.
Tensions in the Middle East have boosted the demand for haven assets. This rise in demand is reflected in the retreat of Treasury yields from a notable weekly increase that had earlier pushed the 10-year rate close to 5%. Investors have demonstrated a renewed interest in bonds, causing yields to drop, while gold continued its upward trajectory. On the geopolitical front, Israel's military actions have intensified. They reported striking Hamas targets in Gaza and retaliating against fire from Lebanon by targeting Hezbollah. Concurrently, US military bases in Iraq and Syria are reporting increased attacks.
Market analysts, like Fawad Razaqzada of City Index and Forex.com, have commented on the situation's impact. Razaqzada noted that the ongoing Middle East tensions have resulted in heightened volatility in oil and stock markets, prompting investors to pivot from riskier ventures to more secure options. In recent weeks, the US stock market has been influenced by mounting geopolitical apprehensions, rising Treasury yields, and concerns over prolonged high interest rates. Despite these challenges, 74% of the 86 S&P 500 companies that have reported earnings exceeded analysts' profit expectations.
Oil traders remain wary as hostilities between Israel and Hamas continue to escalate. Bullish options contracts have been steadily procured, with call options trading outstripping bearish puts for nearly a month. Craig Erlam from Oanda emphasized the added risk premium on oil prices due to potential conflict expansion, especially when the oil market is already strained. Meanwhile, in corporate developments, SLB noted a decline in North American sales, SolarEdge Technologies Inc. expects reduced third-quarter revenue, and Merck (MRK) is set to acquire rights to sell Daiichi Sankyo experimental cancer treatments.
This article was originally published on Quiver Quantitative