US stocks fell sharply Tuesday following the news of Iran launching missiles at Israel.
The Dow Jones Industrial Average declined by 238 points, or 0.4%, while the S&P 500 slipped 1.1% and the Nasdaq Composite tumbled 1.9%.
West Texas Intermediate crude oil surged after reports that Iran fired missiles at Israel, according to the Israel Defense Forces.
The CBOE Volatility Index (VIX), often called Wall Street’s fear gauge, jumped above 20, reflecting heightened concerns among traders.
Iran’s missile attack sends shockwaves
The attack on Israel comes at a time when the global economy is already grappling with high inflation and fears of an economic slowdown.
Iran’s decision to launch missiles followed Israel’s military incursion into southern Lebanon, which targeted Hezbollah, an Iranian-backed militant group.
According to the Israel Defense Forces (IDF), the missiles were launched from Iran, prompting warnings for people to seek shelter immediately.
Financial markets have been quick to react, with the Dow falling sharply by mid-morning.
The S&P 500 dropped by 1.4%, and the Nasdaq followed suit, losing over 2% as investors scrambled to adjust their portfolios in response to the geopolitical developments.
Energy stocks benefited from the rising oil prices, but other sectors, such as technology and consumer goods, saw significant declines.
Impact of Middle East tensions on stock market
Historically, conflicts in the Middle East have had profound effects on global markets, especially on oil prices and defense stocks.
The latest missile attack has reignited these concerns, with investors bracing for possible supply disruptions in the energy sector, which could lead to even more volatility.
The broader market selloff reflects the uncertainty surrounding the potential ramifications of the conflict.
As tensions rose between Iran and Israel, defense stocks saw a notable uptick in early trading.
Major defense contractors, such as Lockheed Martin and Raytheon Technologies, experienced gains amid speculation that the conflict could lead to increased military spending.
In contrast, sectors more sensitive to consumer confidence, including retail and hospitality, were hit hard as investors shifted towards safer assets like gold and bonds.
Meanwhile, US crude oil prices surged over 5% on Tuesday following Iran’s missile strike on Israel.
Energy prices responded swiftly to the developments, with West Texas Intermediate (WTI) November contracts rising to $71.74 per barrel, a gain of 5.24%, while Brent December contracts climbed 5.03% to $75.31 per barrel.
Source: CNBC
Defensive strategies gain momentum
In light of the growing risks, investors have increasingly adopted defensive strategies.
Safe-haven assets such as gold saw a boost in demand, with prices rising by over 1% following the missile attack.
Bonds also benefited, as investors moved away from riskier assets like equities.
Meanwhile, exchange-traded funds (ETFs) focused on the defense sector saw an influx of capital as market participants sought exposure to companies likely to benefit from increased military spending.
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