Major stock indexes, oil prices, and safe-haven assets saw big moves on Sunday evening following a brazen attack on Israel by Hamas forces over the weekend. The surprise escalation of violence in the region has left investors nervous over the geopolitical implications.
US stock futures plunged Sunday night, with the Dow Jones Industrial Average futures dropping around 200 points or 0.7%. S&P 500 and Nasdaq-100 futures also sank on the news. The declines in stock futures indicate markets are poised for sharp losses when regular trading opens on Tuesday after the Columbus Day holiday.
“The events over the weekend obviously destabilize the region; investors have a lot to mull over,” said Kyle Rodda, senior market analyst at Capital.com. “Ultimately, these events tend to have only a short-term impact on financial markets, and it’s probable that this time will be the same.”
Meanwhile, oil prices surged higher on worries over potential disruptions to supplies, especially involving Iran. West Texas Intermediate crude jumped above $86 a barrel, while Brent crude touched $89. Analysts said oil prices could continue rising in the near-term if the conflict impacts Iran’s ability to export oil.
The Wall Street Journal reported Iranian officials assisted Hamas in planning the deadly attacks on Tel Aviv and other Israeli cities. If Israel retaliates against Iran, it could lead to disruptions in Iranian oil exports.
“Any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive, with negative inflationary effects for the West and would mean higher rates for longer,” commented Guillermo Santos, head of strategy at Spanish private banking firm iCapital.
Alongside stocks and oil, traditional safe-haven assets saw substantial inflows from worried investors. Gold prices climbed higher amid the uncertainty. The US dollar also strengthened against major currencies like the euro and British pound, as it often does during bouts of geopolitical tensions. The Japanese yen likewise rallied, underscoring its status as a favored destination for capital during market unrest.
The flare up of violence comes at a tenuous time for global markets already grappling with high inflation and fears of slowing economic growth. The US Federal Reserve and other central banks have been aggressively hiking interest rates to combat surging consumer prices, but those efforts risk tipping economies into recession.
Markets in the Middle East Plummet Following Attacks
Stocks across the Middle East dropped sharply on Sunday in the aftermath of the attacks on Israel. The benchmark TA-35 index in Tel Aviv plunged 6.5%, its biggest one-day loss since 2018. Other major regional indexes, including those in Saudi Arabia, Dubai, and Qatar slid as well.
The Sunday violence marked the worst fighting between Israel and Hamas since a 2021 war. Israeli officials estimate close to 200 rockets were fired from Gaza over the weekend. Israel responded with airstrikes aimed at Hamas military sites and rocket launching teams. At least 24 Palestinians were reported killed, including 6 children.
Most concerning was the highly sophisticated nature of the Hamas attack, which involved rocket barrages and armed drones. An Israeli military spokesman described it as an “unprecedented, lethal attack.” Officials also noted the assistance of Iranian military advisers in planning and equipping the operation.
The Biden administration strongly condemned the attacks and said it is dispatching an aircraft carrier group to the eastern Mediterranean in a show of support for Israel. However, the White House is urging restraint on all sides to prevent a wider regional conflict.
Investors Keep Eye on Broader Fallout
While the initial stock market reaction is negative, analysts say broader market impacts from the fighting could remain limited barring a significant escalation between Iran and Israel. Previous flare-ups in the region have led to short-lived market turmoil that stabilized once tensions eased.
With Monday’s Columbus Day holiday closing US markets, investors will be keeping a close eye on developments in the Middle East before Tuesday’s trading. Any signs the hostilities are spreading beyond Israel and Gaza would likely fuel further market declines.
Much will also depend on the response from Saudi Arabia and other Sunni Arab states who are staunch rivals of Iran. If Iran becomes directly involved in the conflict, it could quickly engulf other powers in the region.
For now, analysts advise investors to brace for more volatility while the situation remains fluid. Market moves are likely to be swift amid the uncertainty, underscoring the need for maintaining well-balanced portfolios despite the headlines.