U.S. Major Averages Drop Nearly 2% as Iran and Israel Launch Attacks

Alexander Garcia
01 Oct, 2024
Miami

Stocks on Wall Street faced selling pressure amid growing prospects of a wider war in the Middle East. 

Wall Street indexes traded down on the rising geopolitical risks and mixed economic data after finishing higher in the previous month and third quarter. 

The S&P 500 index decreased 0.9% and the Nasdaq Composite declined 1.8% after the Israeli military reported that Iran launched ballistic missiles targeting Israel. 

Market sentiment was further dented after workers at key ports decided to strike, which is likely to disrupt supply chains for weeks ahead. 

Stock traders were also monitoring the first strike in fifty years by members of the International Longshoremen's Association on 14 ports on the East and Gulf Coasts. 

About 45,000 members decided to strike after wage negotiations broke down with the U.S. Maritime Alliance employers group. 

Consumers are likely to feel the impact of the strike if it drags on longer than a week, which could invite an intervention by President Joe Biden, asking workers to return to work and look for a settlement over the next eighty days. 

Major averages on Monday edged higher after Fed Chair Jerome Powell signaled two possible rate cuts in the year if the economy performs as expected. 

Market mood further soured after manufacturing contraction extended for the sixth month in a row in September. 

The ISM Manufacturing Purchasing Managers' Index held steady at 47.2, matching the level in the previous month. 

“Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy and election uncertainty," said Timothy R. Fiore, Chair of the Institute for Supply Management Manufacturing Business Survey Committee.

 

U.S. Job Openings Increased, Quits Dropped In August

The number of job openings increased 329,000 to 8.04 million in August from an upwardly revised 7.71 million in July, the U.S. Bureau of Labor Statistics reported Tuesday. 

The number of job openings increased in construction by 138,000, in state and local government excluding education by 78,000, and in accommodation and food services by 88,000. 

However, job openings declined in finance insurance by 41,000 and in other services by 93,000. 

In August, the total number of hires and total separations changed little, at 5.3 million and 5.0 million, respectively. 

Within separations, the number of quits trended down to 3.1 million, the lowest since August 2020, indicating workers are holding on to jobs as it gets harder to find a new job. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.9% to 5,708.76, the Nasdaq Composite fell 1.8% to 17,836.26, and the Russell 2000 index fell 1.4% to 2,197.90. 

The yield on 2-year Treasury notes edged higher to 3.64%, 10-year Treasury notes inched down to 3.74%, and 30-year Treasury bonds inched lower to 4.12%.

WTI crude oil increased $3.0 to $71.76 a barrel, and natural gas prices edged down 3 cents to $2.89 a thermal unit.

Gold fell by $31.61 to $2,666.91 an ounce, and silver increased by $0.32 to $31.56.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 101.13.

 

U.S. Stock Movers

Charles Schwab Corporation declined 1.6% to $63.75, and the company announced the retirement of chief executive Walt Bettinger at the end of the year. 

Charles Schwab President Rick Wurster is slated to assume the leadership role at the start of the new year. 

Stellantis NV declined 1.9% to $13.78 and extended its loss for the second day in a row after the automaker plans to halt production of the electric Fiat 500 until the end of November. 

McCormick & Company increased 0.7% to $82.84 after the spice maker reported better-than-expected revenue and earnings. 

The spice and flavoring company reported net sales in the edge to $1.67 billion from $1.68 billion, net income increased to $223.1 million from $170.1 million, and diluted earnings per share to 83 cents from 63 cents.

The company reaffirmed its sales and operating profit outlook, and estimated adjusted earnings per share between $2.85 and $2.90. 

 

European Markets Dropped Amid Prospects of a Wider War In Middle East

European market indexes swung between gains and losses as investors reviewed the latest update on consumer price inflation. 

Benchmark indexes in Paris, London, and Frankfurt traded around the flatline after inflation in the Euro Area fell more than expected in September. 

However, market sentiment deteriorated rapidly in the late afternoon trading on reports that Iran is preparing to strike targets in Israel ahead of its invasion in Lebanon. 

Crude oil jumped as much as 4% as Israel prepared to carry out a military invasion in Lebanon, targeting territories controlled by Hezbollah, raising the prospects of supply disruptions. 

 

Eurozone Manufacturing Woes Deepened In September 

Eurozone manufacturing woes deepened amid broad weakness and the fall in new orders, output, employment, and procurement activity, S&P Global reported Tuesday. 

The Hamburg Commercial Bank factory purchasing managers' index eased to 45.0 in September from 45.8 in August, according to the revised estimate. 

The index stood at 44.8 in the preliminary estimate, and the final estimate was the lowest in the current series in 2024 and weakest in the current 27-month downturn. 

Across the four largest economies in the currency union, the manufacturing index in Spain rose at the fastest pace to 53.0 from 50.5 in August and extended growth in activities for the eighth month in a row. 

The headline manufacturing index plunged to a 12-month low of 40.6 from 42.4 in August as the sector's slump worsened. 

"The worsening industrial slump in Germany, for example, is too big for Spain's momentum in September to make much of a difference," the Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said. 

 

Weakening Energy Prices Drag Eurozone Inflation Lower In September

Consumer price inflation in the eurozone slowed to 1.8% in September from 2.2% in August, Eurostat reported Tuesday. 

Overall inflation dropped to the lowest level since April 2021. 

The overall inflation slowed largely because of the weakening of the price of energy and related products, tracking lower crude oil prices. 

Energy price deflation accelerated to 6% from 3% in the previous month, and food, alcohol, and tobacco inflation edged up to 2.4% from 2.3%. 

Core inflation, which excludes food and energy, slowed to 2.7% from 2.8% in the previous month, and service inflation slowed to 4% from 4.1%. 

Geographically, inflation eased in Germany to 1.8% from 2.0% in the previous month; in France it eased to 1.5% from 2.2%; in Italy it declined to 0.8% from 1.2%; and in Spain it slowed to 1.7% from 2.4%, respectively. 

Overall inflation is expected to rebound in the later part of 2024, as the previous high base in energy prices ends. 

 

Europe Indexes and Yields

The DAX index decreased by 0.6% to 19,200.18; the CAC-40 index fell by 0.8% to 7,574.07; and the FTSE 100 index rose by 0.5% to 8,276.65. 

The yield on 10-year German bonds edged lower to 2.05%, French bonds inched lower to 2.80%, the UK gilts edged down to 3.95%, and Italian bonds decreased to 3.35%.

The euro edged lower to $1.10; the British pound inched higher to $1.33; and the U.S. dollar weakened to 84.66 Swiss cents.

Brent crude increased $2.58 to $74.28 a barrel, and the Dutch TTF natural gas rose by €0.76 to €39.42 per MWh. 

 

Europe Stock Movers

Covestro AG jumped 4.2% to €58.10 after the Abu Dhabi-controlled oil company, ADNOC, said it plans to buy the German chemical firm for €14.7 billion. 

The acquisition deal requires ADNOC to purchase all outstanding shares at €62 per share. 

Crude oil prices traded volatile as investors weighed rising tensions in the Middle East against demand growth worries in the U.S. 

BP plc, Shell PLC, TotalEnergies SE, and Repsol SA declined between 0.2% and 0.5%. 

Mulberry Group PLC declined 3.2% to 120.0 pence, and the British luxury handbag maker rejected a conditional offer from Mike Ashley-controlled Frasers Group. 

Greggs plc declined 4.2% to 2,992.0 pence after the bakery chain reported a slowdown in its core business in the latest quarter. 

 

Tokyo Indexes Recover 2%, Japan Business Sentiment Held Steady In Third Quarter 

Stock market indexes in Tokyo advanced, and the yen eased as investors reviewed the latest economic updates. 

The Nikkei 225 stock average jumped 1.9%, and the Topix index advanced 1.7% after market sentiment reversed from the previous sentiment. 

The yen weakened 0.5% to 144.36 against the U.S. dollar after calm returned to markets following the knee-jerk reaction in the previous session. 

Markets sold off after former defense minister Shigeru Ishiba won the race to lead the Liberal Democratic Party, following the abrupt resignation of Prime Minister Fumio Kishida. 

The hawkish monetary policy advocate Ishiba is expected to name former Chief Cabinet Secretary and health minister Katsunobu Kato as the next finance minister. 

Ishiba's selection of cabinet members suggested that the next prime minister is laying the groundwork for a stable administration that is likely to favor moderate policies and a gradual increase in interest rates. 

On the economic front, the au Jibun Bank Japan Manufacturing PMI was revised higher to 49.7 in September from the preliminary estimate of 49.6 and 49.8 in the previous month, S&P Global reported Tuesday. 

The manufacturing sector contracted for the third month in a row, and activities declined for the seventh consecutive month as new orders fell driven by weakness in export orders. 

In addition, the business sentiment weakened to the lowest level since December 2022. 

The Bank of Japan's sentiment index among large manufacturers was stable for the second quarter in a row, according to the survey released by the central bank on Tuesday. 

The sentiment index among the 1,730 large companies surveyed in the quarter was steady at 13, among 2,576 mid-sized companies was steady at 8, and among 4,732 small companies improved from -1 to zero. 

The overall index among all 9,038 participants improved to 14 from 12, according to the data available from the so-called Tankan survey. 

Meanwhile, large companies are looking to increase capital spending by 10.6% in the current fiscal year ending in March 2025. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average gained 1.9% to 38,643.77, and the Topix index advanced 1.7% to 2,690.32. 

Exporting companies and industrial heavyweights traded higher after U.S. Fed Chair Powell poured cold water over another 50 basis points rate hike during the next policy meeting. 

Mitsubishi Heavy Industries increased 7.5% to ¥2,278.0, Kawasaki Heavy Industries gained 8.2% to ¥6,286.0, and IHI Corp. jumped 7.9% to ¥7,966.0. 

Mitsubishi UFJ advanced 2% to ¥1,482.50, Sumitomo Mitsui Financial Group gained 2.1% to ¥3,110.0, and Mizuho Financial increased 2.1% to ¥2,998.0. 

Seven & I Holdings advanced 0.6% to ¥2,160.50, Isetan Mitsukoshi jumped 5% to ¥2,340.50, and Fast Retailing gained 2.4% to ¥48,570.0. 

Marubeni Corp. gained 1.9% to ¥2,385.50, Itochu Corp. added 3.7% to ¥7,960.0, Mitsui & Company jumped 3.7% to ¥3,293.0, and Mitsubishi Corp. added 2.5% to ¥3,027.0. 

Shipping companies were in focus amid elevated tensions in the Middle East, and shipping workers at 14 ports on the U.S. East Coast and along the Gulf of Mexico were demanding higher wages over the next five years. 

The container shipping companies have earned more than $400 billion over the four years since the onset of the pandemic in 2020, surpassing the combined profits in the previous four decades. 

Nippon Yusen KK increased 1.9% to ¥5,298.0, Mitsui O.S.K. Lines gained 1% to ¥4,976.0, and Kawasaki Kishen Kaisa added 0.5% to ¥2,224.50.