Oct 19, 2023

The S&P 500 gave up gains from Monday and Tuesday after traders started to price in the geopolitical problems.

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SP500: Daily Chart

The SP500 was trading at 4,324 near the close of Wednesday after failing at resistance near 4,400. Today’s losses may lead to further lows.

The largest 500 companies in the United States fell, leading to a loss of over 1.2% for the day. Traders fear an escalation of the Israeli-Hamas conflict after an explosion at a Gaza hospital led to criticism of the former. After the bombing, the leaders of Jordan, Egypt, and the Palestinian Authority cancelled their planned meeting with President Biden.

The situation could worsen after the US vetoed a UN proposal for a ceasefire, and reports say that the Israeli army is ready to mount a ground offensive.

The increase in tensions led to oil prices rising 0.75% and US 10-year bond yields jumping 1.24% to almost 4.9%. In crude oil, Iran’s foreign minister called for an outright embargo on oil exports to Israel.

Airline stocks were lower after United Airlines warned that the Israeli-Hamas war and higher jet fuel costs would weigh on earnings. Morgan Stanley was also down more than 7% after reporting weaker-than-expected Q3 wealth management revenue. As noted in the earnings preview, the stock needed strong earnings to continue the week’s rally, and the company had shifted its focus away from trading to wealth management.

Nvidia (NVDA) was down more than 3% after it warned the new US rules on chip exports to China could hinder its product development.

The markets are now pricing in a 12% chance that the FOMC will raise rates by 25 basis points at the next FOMC meeting that ends on November 1, and a 48% chance for that 25 bp rate hike at the following meeting that ends on December 13. A speech tomorrow from Jerome Powell will be the key to the US economic calendar.

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