Dow industrials jump 314 points as investors await earnings, shake off Israel-Hamas war

Dow industrials jump 314 points as investors await earnings, shake off Israel-Hamas war

Rite-Aid files for bankruptcy

U.S. stocks finished sharply higher on Monday as investors prepared for earnings season to move into full swing and unwound last week’s flight-to-safety trades on the Israel-Hamas war.

What happened

  • The Dow Jones Industrial Average DJIA closed 314.25 points, or 0.9%, higher at 33,984.54. It was the sixth gain of the past seven trading sessions for Dow industrials.
  • The S&P 500 SPX ended up by 45.85 points, or almost 1.1%, at 4,373.63.
  • The Nasdaq Composite COMP finished up by 160.75 points, or 1.2%, at 13,567.98.

Stocks finished mostly lower on Friday, with the Nasdaq Composite falling 0.2% for last week. However, the Dow Jones Industrial Average managed to break a streak of three consecutive weekly losses and the S&P 500 scored a second straight weekly gain.

What drove markets

Stocks gained as traditional havens, including gold, the U.S. dollar and Treasurys, all lost ground. Monday’s fall in Treasury prices meant a renewed rise in 2- BX:TMUBMUSD02Y through 30-year yields BX:TMUBMUSD30Y.

Meanwhile, oil prices settled lower, after having jumped on Friday to their highest since the Hamas attack on Israel earlier this month. November West Texas Intermediate crude CLX23, -0.33% fell $1.03, or 1.2%, to settle at $86.66 a barrel on the New York Mercantile Exchange. Crude prices have remained below 2023 highs set in late September before the Hamas attack, and analysts expect oil to remain a bellwether for other asset prices.

Equities held up on Monday despite the Middle East conflict “because the war is seen as having no major impact on U.S. markets yet unless it broadens out,” said Eric Sterner, chief investment officer at Apollon Wealth Management, which manages roughly $5.3 billion from Mount Pleasant, S.C.

There are also expectations that U.S. companies will “break out” of the recent earnings recession, Sterner said via phone. Earnings season got off to a positive start Friday, with results from major Wall Street players.

More of Wall Street’s big banks will report results on Tuesday, with Bank of America BAC, +0.86%, Goldman Sachs GS, +1.65% and BNY Mellon BK, +1.60% stepping up to the plate. Big tech results will start with Netflix NFLX, +1.45% and Tesla TSLA, +1.12% on Wednesday.

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But jitters around the prospect of a broader war in the Middle East were likely to remain at least a background concern, analysts and investors said.

The Israel-Hamas war has a 70% chance of drawing in militant groups from Lebanon or Syria, or producing a direct conflict with Iran — creating more oil disruptions than financial markets currently think, according to Matt Gertken, chief geopolitical strategist for Montreal-based BCA Research.

Israel continued to pound the Gaza Strip ahead of an expected ground invasion of the Hamas-controlled enclave. The prospect of a ground incursion has drawn warnings from Iran, which in turn was being told by Western leaders and diplomats not to escalate the conflict.

“The market is realizing that most military shocks since World War II have been local in nature, allowing the market to rebound quite swiftly after the initial selloff,” said Sam Stovall, chief investment strategist for CFRA Research in New York. “In addition, third-quarter earnings, like 54 of the past 56 quarters, should see actual results exceed end-of-quarter estimates. This should add to investor confidence,” he said via phone.

The S&P 500 has endured an earnings recession from the fourth quarter of 2022 through the second quarter of this year, though the actual data shows that it’s been shallower than analysts had expected, according to Stovall.

The New York Fed’s Empire State business-conditions index, a gauge of manufacturing activity in the state, edged down 6.5 points in October to negative 4.6, the regional Fed bank said Monday. Economists had expected a negative six reading, according to a survey by The Wall Street Journal. Any reading below zero indicates deteriorating conditions.

The benchmark 10-year Treasury yield BX:TMUBMUSD10Y jumped 8.1 basis points to finish at almost 4.71% as traders remained open to the idea that sturdy U.S. economic data and signs of sticky inflation will keep interest rates higher for longer.

Companies in focus

  • Drugstore chain Rite Aid Corp. RAD, facing billions of dollars of debt related to opioid lawsuits, filed for bankruptcy Sunday. Shares were halted on the New York Stock Exchange.
  • Pfizer Inc. PFE, +3.61% shares ended 3.6% higher after executives outlined cost reductions first announced late Friday. The cost-cutting program, designed to deliver savings of at least $3.5 billion, “will touch all parts of the business and all regions,” Pfizer Chief Financial Officer Dave Denton said on a call with analysts.
  • Shares of Lululemon Athletica Inc. LULU, +10.31% finished up by 10.3% after index provider S&P Dow Jones Indices said the stock will join the S&P 500 on Wednesday.
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