Oil prices jumped about 4% on Tuesday following reports Iran was preparing to launch a missile attack on Israel. Brent futures were up 3.5%, to $74.2 a barrel, while US West Texas Intermediate crude rose $2.54, or 3.7%, to $70.7.
Israel’s elite units launched limited ground raids into Lebanon, as Hezbollah – an Iran-backed group in Lebanon – fired missiles at Tel Aviv, with the US warning it had indications Iran may be preparing to enter the fray with a ballistic missile attack on Israel.
The S& fell 1.4% in its worst intraday decline in three weeks, with the IT sector dragging down the index, which has since regained some of that decline. Apple, Nvidia and Microsoft were by far the biggest weights on the benchmark. Meanwhile, the Cboe Volatility Index jumped to highest level in nearly a month. “Middle East tensions have markets on edge,” said Callie Cox, chief market strategist at Ritholtz Wealth Management. “Oil prices are up, bonds are up, gold is up, stocks are down. That’s the classic geopolitical reaction.”
Pricey equity valuations entering the fourth quarter have left some corners of the market exposed to any sudden shocks – geopolitical or otherwise – and that could be amplifying the selloff, some Wall Street pros said. “While Middle East uncertainty is a huge overhang, the absence of valuation support is the real problem as it means equities have little air cover to absorb exogenous macro developments,” the Vital Knowledge newsletter said.
The tit-for-tat escalation following weeks of intense Israeli airstrikes on Lebanon raised concerns of a broader Middle East conflagration.