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US Stock Wavering Amid The recent incident involving an attack on an American warship and commercial vessels in the Red Sea on Sunday. It has heightened concerns among investors regarding the potential escalation of the conflict between Israel and Hamas. This development poses a risk to the recent market rally. Which witnessed U.S. stocks reaching a new closing high for the year last week.
Acknowledging reports of attacks on an American warship and commercial vessels in the Red Sea, the Pentagon has confirmed its awareness. While Yemen’s Houthi group claims responsibility for drone and missile attacks on two Israeli vessels in the same region. Additionally, a U.S. military official reported a self-defense strike in Iraq against an “imminent threat” at a drone staging site.
These unfolding events intensify fears that the Israel-Hamas conflict may broaden into a more complex scenario. Which involving the U.S. and regional players such as Iran. Earlier concerns of this nature emerged after Hamas’ attack into southern Israel on October 7 but had subsided in recent weeks.
US Stock Wavering: Market Response to Rising Tensions and Potential Profit-Taking
During Asian trade on Monday, S&P 500 futures experienced a 0.2% decline. Brent crude futures initially rose before slipping 0.8% to $78.27 a barrel. Gold reached a record high of $2,111 an ounce.
Quincy Krosby, Chief Global Strategist at LPL Financial, indicated that an escalating conflict could lead some investors to capitalize on recent stock market gains. The S&P 500. Which surged nearly 9% in November due to easing inflation and optimism about the Federal Reserve’s stance on interest rates. Reached a 2023 closing high on Friday at 4594.63, marking an almost 20% increase for the year.
Also Read: Australian Dollar Descends Toward Psychological Threshold
Krosby emphasized the market’s sensitivity to the expansion of the conflict and suggested that active managers might be inclined to secure their gains if it signals a deeper military involvement by the U.S.
Geopolitical Tensions: Impact on Safe-Haven Assets and Oil Prices
Historically, past instances of geopolitical tensions have driven investors towards safe-haven assets like gold, Treasuries, and the U.S. dollar. An escalating Middle East conflict could also contribute to a rebound in oil prices, which have declined in recent weeks.
Phil Orlando, Chief Equity Market Strategist at Federated Hermes, noted that increasing tensions in the region could push West Texas Intermediate crude prices to a range between $80 and $90 per barrel.
US Stock Wavering: Key Factors Influencing Stocks Amidst Geopolitical Uncertainty
Investors are closely monitoring various factors that could impact stocks in the coming weeks. Including the upcoming U.S. employment report on Friday, which may strengthen the case for a restrained Fed monetary policy. Other potential catalysts include the Fed’s monetary policy meeting on December 12-13. As well as seasonal factors such as tax-loss selling and the anticipated “Santa Claus rally.”
Orlando warned that a spike in geopolitical tensions could lead to a drop in the S&P 500 by “one or two hundred points,” though he remains confident that the index will end the year at 4,600.
