As we enter a new week, investors are anxiously anticipating any signs of escalating conflict in the Middle East, a situation that could further disrupt already volatile markets.
The markets are bracing themselves for a hectic week ahead, with a monetary policy statement from the U.S. Federal Reserve and Apple’s earnings results eagerly awaited.
In the last two days, Israel has intensified its ground and air operations in the Gaza Strip, following nearly three weeks of attacks from Hamas on Southern Israel.
Investors’ concerns have grown over the potential widening of the conflict in recent days, especially after the United States dispatched additional military equipment to the Middle East, coinciding with Israeli attacks on targets in Gaza, and supporters of Hamas in Lebanon and Syria.
“The situation in Israel… is causing a lot of concern,” said Randy Frederick, Vice President of Trading and Derivatives at Charles Schwab, speaking to Reuters.
Brent crude futures rose by 2.9% to $90.48 on Friday at settlement, driven by fears that the conflict could disrupt crude oil supplies. Gold, traditionally seen as a safe haven for worried investors, jumped in spot transactions to over $2,000 for the first time since mid-May.
Analysts at Capital Economics noted in a memo on Friday that the oil market’s response to the conflict has been “muted” so far. However, they added, “Any indication that other countries in the region will become more involved in the conflict would cause a sharp rise in oil prices.”
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, highlighted that if the escalation of the conflict leads to increased U.S. war-related spending, expanding the deficit, Treasury yields could surpass their highest levels in 16 years, already recorded.
Some investors also anticipate that an expansion of the conflict could lead to a rush to buy Treasury bonds as a safe haven. This could potentially curb the rise in bond yields, which move inversely to prices, thereby easing pressures on stocks and other assets.
The S&P 500 index has fallen more than 10% since late July when it hit its highest level in 2023. However, the index has risen over 7% since the beginning of the year.
