Wall Street turns positive as investors digest news of Mideast conflict

Wall Street’s major indexes rebounded on Monday, erasing earlier losses, as energy stocks rallied alongside rising oil prices. Investors also digested the latest developments in the conflict between Israel and Hamas, the Palestinian Islamist group.

The Israeli military announced that it had called up an unprecedented 300,000 reservists and imposed a total blockade on the Gaza Strip, indicating a possible ground assault to defeat Hamas following a deadly attack over the weekend. However, late in the afternoon, a senior Hamas official expressed openness to discussions for a potential truce, stating that the group had “achieved its targets.”

Efforts were underway to negotiate the release of Israeli women and children held by Hamas in exchange for the freedom of Palestinian women and children from Israeli prisons. Qatari mediators were involved in these talks, seeking a resolution to the ongoing conflict.

In response to the situation, U.S. President Joe Biden directed his team to coordinate with regional partners to warn against anyone seeking to take advantage of the crisis. U.S. Defense Secretary Lloyd Austin announced that multiple military ships and aircraft would be sent closer to Israel as a show of support.

Despite the geopolitical uncertainty, the Dow Jones Industrial Average rose by 0.58%, gaining 192.12 points to reach 33,599.7. The S&P 500 also climbed, adding 27.9 points or 0.65% to reach 4,336.4, while the Nasdaq Composite increased by 0.44% or 58.70 points, closing at 13,490.04.

The bond market was closed for Columbus Day, but recent surges in U.S. Treasury yields had previously put pressure on equities. However, on Monday, long-term U.S. Treasury bond ETFs experienced gains, with the iShares Core 10+ years U.S. bond ETF rising by over 1% and the iShares 20+ years Treasury bond ETF up by almost 2%.

“The occurrence in the Middle East is going to bump up energy, and there’s a flight to quality given the uncertainty in the geopolitical sphere,” noted Alex McGrath, Chief Investment Officer for NorthEnd Private Wealth in Greenville, South Carolina.

Traditional safe-haven assets, such as gold, saw a rise of over 1%, while the U.S. dollar index gave up earlier gains and dipped by 0.1%.

Amid concerns that the conflict could disrupt oil supplies, energy emerged as the top-performing sector in the S&P 500, surging by almost 4% and on track for its biggest single-day advance in six months. However, airlines, including United Airlines, Delta Air Lines, and American Airlines, suspended direct flights to Tel Aviv, causing their shares to fall by around 4% and dragging down the S&P 500 Passenger Airlines index by over 3%.

Defense companies experienced a rally following the news, with the S&P 500 Aerospace & Defense index rising by more than 5%. Northrop Grumman saw an 11% increase, while L3Harris Technologies rose by 10%.

Exchange-traded funds exposed to Israel faced selling pressure, with the iShares MSCI Israel ETF declining by over 7% and the ARK Israel Innovative Technology ETF sliding by 4%.

Overall, advancing issues outnumbered decliners on the NYSE, with a ratio of 2.22-to-1, while on Nasdaq, decliners had a slight edge with a ratio of 1.02-to-1. The S&P 500 recorded six new 52-week highs and 19 new lows, while the Nasdaq Composite registered 31 new highs and 292 new lows.

As the situation in the Middle East continues to unfold, investors will closely monitor developments and their potential impact on various sectors and companies.