Stock Market Reacts To Israel-Gaza Conflict

U.S. stocks closed mixed on Friday, October 13th, 2023, after a volatile week following the terror attacks on Israel.

After rallying during the first three days of the week in the face of geopolitical tensions, the market succumbed to fear and uncertainty as the situation worsened.

Israel’s military ordered more than a million people to evacuate Gaza, indicating the start of a ground offensive.

Investors sought safe-haven assets such as U.S. Treasury bonds and gold, as the Israel-Gaza conflict appeared likely to escalate heading into the weekend.

Treasury 30-year yields dropped by eight basis points to 4.78%, while the 10-year yield closed at 4.62%, reversing part of the previous session’s surge.

West Texas Intermediate crude oil topped $87 a barrel.

The VIX also known as the fear gauge, closed 15.75% higher.

There was some positive news on Friday with JPMorgan and Wells Fargo reporting better-than-expected results, sending the banking sector higher.

Federal Reserve Bank of Philadelphia President Patrick Harker said that disinflation is underway and reiterated his preference for maintaining interest rates at their current levels, unless there is a significant change in data.

For the week, the Dow Jones posted a 0.8% gain, and the S&P 500 added 0.4%, but the tech-focused Nasdaq fell 0.2%.

Here are the closing levels on Friday, October 13th, 2023: 

Last  Change  %Change 
DOW JONES  33,670.29 +39.15 +0.12%
S&P 500 4,327.78 -21.83 -0.50%
NASDAQ 13,407.23 -166.99 -1.23%
U.S. 10Yr 4.66%
VIX 19.32 +2.63 +15.76%

Despite the mixed week, it could have been worse.

The U.S. economy is holding up in the face of various challenges, but a string of political and economic risks could trigger a deterioration, according to JPMorgan President Daniel Pinto.

“There are plenty of things that could go wrong,” Pinto stated, including an escalation of problems related to Russia’s invasion of Ukraine, the Hamas attack on Israel, and complications arising from the U.S.’s relationship with China.

He is not wrong.

With the potential for higher energy costs, which could lead to inflation, it’s too early to rule out the Federal Reserve’s actions. Fed’s Bullard says, “We may need more Fed hikes if inflation quickens its pace.

For now, it might be best to stay on the sidelines until there is more clarity.

Source: CBOE, Bloomberg

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.

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