Investors are closely monitoring the situation in the Middle East over the weekend to determine if the conflict will escalate. This could increase volatility in the markets, which are already anticipating a busy week ahead with the Federal Reserve policy statement and Apple results.
Israeli air and ground forces have intensified their operations in the Gaza Strip, following a deadly attack by Hamas three weeks ago.
Concerns about a widening conflict have grown as the U.S. has deployed more military assets to the Middle East, and Israel has targeted Gaza as well as Hamas supporters in Lebanon and Syria.
Randy Frederick, managing director of trading and derivatives for Charles Schwab, stated that the situation in Israel is causing a lot of anxiety among investors.
On Friday, Brent futures settled at $90.48 a barrel, up 2.9%, due to concerns that the conflict could disrupt crude supplies. Spot gold, a safe haven for nervous investors, surpassed $2,000 for the first time since mid-May.
According to analysts at Capital Economics, the oil market’s response to the conflict has been relatively muted so far. However, they noted that if other countries in the region become more involved, oil prices could rise sharply.
Peter Cardillo, chief market economist at Spartan Capital Securities, warned that an escalation of the conflict could lead to increased war-related spending by the U.S., causing Treasury yields to rise even further.
Some investors believe that a widening conflict could result in safe-haven buying of Treasuries, which could moderate the surge in yields and alleviate pressure on stocks and other assets.
Although the S&P 500 has fallen more than 10% since its peak in late July, it is still up over 7% year-to-date.
UBS Global Wealth Management noted that U.S. government bonds have not been performing their usual safe-haven function, but an escalation of the conflict could shift attention away from monetary policy concerns and increase demand for Treasuries.
The Cboe Volatility index has risen in response to the conflict and approached seven-month highs on Friday.
In addition to the conflict, investors are also anticipating the Federal Reserve’s monetary policy statement on Wednesday and Apple’s quarterly results.
This article was written by Lewis Krauskopf and additional reporting was done by David Randall. It was edited by Ira Iosebashvili and David Gregorio. The Thomson RushHourDaily Trust Principles apply.
