Middle East escalation weighs on US stock markets – energy sector and meta as winners
Quick Look
- The escalation in the Middle East drove the price of oil above $100 and weighed on US stock markets with losses in the Dow Jones, S&P 500 and Nasdaq.
- While the energy sector was the only sector to gain, Meta limited the losses in the S&P 500 with a price increase of over six percent by introducing an AI assistant.
AI-generated summary
Why It Matters
The conflict between the US, Israel and Iran has already been going on for seven months and has recently escalated further, pushing oil prices above $100.
The further escalation in the Middle East is poison for the US stock exchanges. The price of oil climbs back above the $100 mark. Only one industry can benefit from it.
Concerns about rising oil prices and higher bond yields caused Wall Street to fall on Wednesday. The Dow Jones index of standard stocks closed 0.8 percent lower at 52,381 points. The broader S&P 500 fell 0.5 percent to 7,636 points. The Nasdaq technology exchange index lost 0.6 percent to 26,253 points.
Fears of an expansion of the US and Israel's war against Iran, which has been going on for seven months, drove the price of North Sea Brent to over $100 per barrel (159 liters). This fueled new fears of inflation among investors. At the same time, the yield on ten-year US government bonds rose to its highest level since November 2023. The US Treasury Department had announced that it would buy ten to 20-year government bonds worth up to six billion dollars. Analysts had expected a larger volume of eight to ten billion dollars. "This is a little concerning to the markets, especially since we don't have much to base our earnings expectations on until the start of third-quarter earnings season," said Rob Haworth, investment strategist at U.S. Bank Wealth Management.
Investors now looked to US producer prices on Thursday and consumer prices on Friday for clues about the US Federal Reserve's interest rate course. Traders are currently pricing in a 60 percent chance of a rate hike next week.
Meta saves S&P 500 from major losses
On the corporate side, the energy sector benefited from high oil prices and was the only sector to grow. Apple shares fell 0.3 percent. The technology group held its first smartphone presentation under new boss John Ternus.
Meta, on the other hand, jumped by more than six percent and thus limited the losses in the S&P 500. The social media company presented a long-announced AI assistant that can independently send emails, sell a car or book trips on behalf of the user. Alphabet lost 2.3 percent. The Google parent company plans to invest at least $15.1 billion in AI infrastructure in Finland over the next two years and has also signed a major contract to supply nuclear power.
Shares of the chemical company Dow fell 0.6 percent after the Bloomberg news agency reported that the company was considering exiting its $20 billion partnership with Saudi Aramco.
What to Watch
AI outlook — possibilities, not facts
The Fed will raise interest rates next week.
Likely · Within days
Meta will benefit from higher user engagement and new revenue streams in the long term through the AI assistant.
Possible · Within months
Open Questions
- How will the Middle East escalation affect global oil supplies in the long term?
- Will the Fed actually raise interest rates due to inflation fears?
- How sustainable is the energy sector's profits if geopolitical instability persists?
