US stocks closed lower on Tuesday, with Nasdaq losing over 1%, following Iran’s missile attack on Israel. Energy companies’ shares rose, while oil prices surged. Investors remain cautious amid uncertain Middle East developments.
Experts are questioning whether Iran’s strike is an escalation or a one-off backlash, with the market reaction being guarded as investors await Israel’s response.
Gold and government bonds surged on Tuesday, holding most gains on Wednesday, while oil traded at $75 a barrel. Gold surged 30% this year due to a US economy slowdown and Federal Reserve interest rate cuts, largely due to the dollar’s decline.
Investors know that geopolitical tensions, like Russia’s Ukraine invasion in 2022, led to short-lived market fluctuations, prompting investors to flee risky assets and invest in gold and the dollar.
Investors are anticipating the upcoming U.S. election and a crucial jobs report, which could influence the Fed’s policy direction, amidst Middle East tensions. Traders predict a 38% chance of the Federal Reserve lowering interest rates by 50 basis points in November, up from 58% a week ago, according to CME Group’s FedWatch Tool.
A full-blown response from Israel may bring in more news-led volatility in the market. The first Iranian missile attack on Israel in April was successfully downed with U.S. military assistance, preventing further escalation. Risky assets sold off but rebounded due to reduced conflict and economic disruption. Still, geopolitics is a challenging area to trade, making a low-risk profile a prudent strategy for investors.