Key Takeaways
- Middle East Tensions Push Oil Prices Higher, Markets Face Increased Volatility
- Dockworkers’ Strike Adds Inflation Concerns As Economic Instability Grows
- Jerome Powell Hints At Smaller Rate Cuts Amid Rising Uncertainty
Stocks got off to an auspicious start for October as tensions in the Middle East ratcheted higher and a dockworkers’ strike injected and extra dose of volatility. The S&P 500 fell 0.9% and the Nasdaq Composite dropped 1.5%. Small cap stocks were also hit with the Russell 2000 dropping 1.5%. The Dow Jones Industrial Average was the best performing industry, but it too was down 0.4%.
Tuesday morning began with a mixture of economic news that showed prices moderating further but a higher than forecast number of job openings in the most recent JOLTs report. However, markets barely had time to digest that data before escalating hostilities in the Middle East took center stage when Iran launched a barrage of missiles aimed at Israel. While damage was limited, the increasing hostilities sent November crude oil futures higher by as much as 5% before settling down some and closing up nearly 4%. Israel has vowed retaliation against Iran and the question now becomes, just how bad the situation will become. In premarket, oil is trading higher by more than 3%.
At the same time, back here at homes, workers from the International Longshoremen Association (ILA) went on strike shutting down ports along the East and Gulf Coasts. According to The Wall Street Journal the ILA unloads around 60%, or $588 billion, of all containerized trade that comes through those coastal ports. Ports will often shut down for things such as hurricanes and therefore, a day or two of closures would have a nominal impact on the economy. However, as the strike lingers, estimates range widely for just what an extended work stoppage would mean.
For markets, I think the most concerning aspect of an extended strike and conflict in the Middle East is the potential for it to reintroduce inflation at a time where it seems like the Fed may have actually achieved a soft landing. In his remarks Monday, Jerome Powell talked about further rate cuts but suggested they may not be as aggressive as September’s half-point cut. Currently, the CME Fed Watch Tool is assigning a 63% probability of a quarter-point cut in November and 37% chance of a half-point. This is something I’m keeping my eye on.
Some individual stocks I’m watching include Humana. That stock is down in premarket trading by 24% as membership in high-rating Medicare plans is expected to fall. Apple is lower by 0.5% after analyst downgrades. Meantime, Home Depot is higher following an increased price target of $455 from Piper Sandler. That is up from $387. The narrative here is that with interest rates lower, homeowners will look at making repairs prior to putting their homes on the market. If that does turn out to be the case, I’ll be interested to see if other companies such as Lowe’s also see upgrades. Finally, shares of Nike are down 7% in premarket following their earnings. Revenues fell 10% and profits were down 28% year-over-year. The company also was unwilling to offer a full year forecast after recently replacing their CEO.
For today, markets will likely be preoccupied with the situation in the Middle East, and the slightly stronger than expected ADP payroll number. The conflict between Israel and Iran is very much in danger of becoming more widespread as we await the next move. Between China’s slowing economy and resultant stimulus measures, a strike that could reignite inflation, the upcoming U.S. election, wars on multiple fronts, earnings season just over a week away and wide-ranging speculation as to the state of our own economy, it should come as no surprise that volatility is increasing. The VIX is trading near 19.5 in premarket and with Friday’s employment report looming, I would not be surprised to see it hold here or potentially even increase. As always, I would stick with your investing plans and long-term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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