Investors are closely watching for any signs of escalation in the Middle East conflict at the start of this week, a situation that could further disrupt markets already anticipating a busy week with the Federal Reserve's monetary policy statement and Apple's quarterly results. Concerns among investors about the widening scope of the conflict have increased in recent days as the United States has sent more military equipment to the Middle East while Israel targets locations in Gaza and Hamas supporters in Lebanon and Syria. Randy Frederick, the managing director of trading and derivatives at Charles Schwab, stated, "The situation in Israel... is causing a lot of anxiety."
Brent crude futures rose 2.9% to $90.48 at settlement due to fears that the conflict could disrupt crude oil supplies. Gold, seen as a safe haven for anxious investors, jumped in spot transactions to over $2,000 for the first time since mid-May. Analysts at Capital Economics noted in a memo that the market's response to the conflict in oil has been "weak" so far. They wrote, "However, any signal that other countries in the region will become more involved in the conflict will cause a sharp rise in oil prices."
Peter Cardillo, chief market economist at Spartan Capital Securities, mentioned that if escalating conflict leads to increased U.S. war-related spending, which would widen the deficit, Treasury yields will surpass their highest levels in 16 years that have already been recorded. Some investors also anticipate that an expansion of the conflict will lead to a safe haven buying of Treasuries. This could suppress the rise in bond yields, which move in the opposite direction of prices, potentially easing pressures on stocks and other assets.
The S&P 500 index has fallen more than ten percent since late July when it reached its highest level in 2023, but the index is still up over seven percent since the beginning of the year. UBS Global Wealth Management noted in a memo, "So far, U.S. government bonds have not performed their usual safe haven role." They added, "However, an escalation in the conflict is likely to shift attention away from monetary policy concerns and enhance demand for Treasuries as a safe haven." The Federal Reserve is scheduled to release its latest monetary policy statement on Wednesday, while Apple's quarterly results are anticipated to highlight another busy week of corporate reports.
