Wall Street Seeks Safety Amid Geopolitical Angst: Markets Wrap

JPMorgan Asset Management Chief Global Strategist David Kelly says the uptick seen in the September CPI report is "not really" changing his mind on the ultimate path of US inflation. "I think we're on track for headline CPI being at 2% or less in the fourth quarter of next year," he says on "Bloomberg Surveillance."

(Bloomberg) -- Stocks fell and bonds rose as signs Israel is preparing for a ground invasion of Gaza left traders looking for safety ahead of the weekend. Gold surged the most since March. Oil rallied.

Big tech sold off, with the Nasdaq 100 down over 1%. Boeing Co. sank after saying it's investigating quality issues affecting the 737 Max aircraft. JPMorgan Chase & Co. and Wells Fargo & Co. gained on solid earnings. Treasury 30-year yields dropped nine basis points to 4.76%, unwinding part of the previous session's surge. West Texas Intermediate crude topped $87 a barrel.

For more on the Israel-Hamas war, click here.

A sharper escalation of the conflict in the Middle East could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. In that scenario, Bloomberg Economics estimates oil prices could soar to $150 and global growth drop to 1.7% — a recession that takes about $1 trillion off world output.

“The situation in Israel is a horrible one, and if it spreads into a regional conflict, the human costs will rise exponentially, and the financial costs around the globe will begin to rise very, very quickly as well,” said Matt Maley, chief market strategist at Miller Tabak + Co. Investors should get at least “some insurance against a sudden drop in the stock market between now and the end of the year,” he noted.

A sustained rise in oil prices will hurt the global economy even more, and this is clearly not good for stock markets with already-high valuations, according to Fawad Razaqzada, market analyst at City Index and Forex.com.

“The renewed rise in oil prices today, if sustained, could stoke inflationary worries further and make stagflation even worse for oil-importing countries in the Eurozone, Japan and China, among others,” Razaqzada noted. “This comes as borrowing costs have skyrocketed across the developed economies.”

Jamie Dimon warned of serious geopolitical risks as Israel prepared for a ground assault on Gaza.

“This may be the most dangerous time the world has seen in decades,” the JPMorgan chief executive officer said in the bank's third-quarter earnings statement. “The war in Ukraine compounded by last week's attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”

Traders also waded through the latest economic data and comments from central bank officials for clues on the policy outlook.

US consumers' year-ahead inflation expectations rose sharply in early October, driving a steep deterioration in Americans' views of their finances as well as sentiment. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data.

Read: Bullard Says May Need More Fed Hikes If Inflation Quickens Pace

Corporate News

Microsoft Corp. completed its $69 billion purchase of Activision Blizzard Inc. after a nearly two-year fight with global regulators threatened to scuttle the deal.
Progressive Corp. gained after the insurer's results showed an improvement in underwriting profitability.
UnitedHealth Group Inc. lifted the lower end of its annual profit forecast as lower-than-expected-medical costs helped the company beat quarterly earnings estimates.
BlackRock Inc. clients pulled a net $13 billion from long-term investment funds, the first outflows since the onset of the pandemic in 2020.
PNC Financial Services Group Inc. said it started reducing headcount by 4% as the bank navigates fallout from higher interest rates that has eaten away at profitability.
Dollar General Corp. Chief Executive Officer Jeff Owen stepped down after nearly a year in the role during which the shares plunged and workplace safety concerns mounted.