Indices fell due to the Middle East situation

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Key points:

  • US stock markets fell sharply on Monday amid news of the conflict between Iran and Israel.
  • Retail sales in March were higher than expected, which provided temporary support to the market.
  • The S&P 500 recorded its biggest two-day drop since March 2023.

US stock markets showed a sharp decline on Monday. Despite initial gains driven by encouraging retail sales data, investor optimism has waned amid rising Treasury yields and escalating geopolitical tensions between Iran and Israel.

The Dow Jones Industrial Average ended the day down 248.13 points, or 0.65%, at 37,735.11. The S&P 500, a broader market gauge, lost 61.59 points, or 1.20%, to 5,061.82. The tech-heavy Nasdaq Composite was the biggest loser, falling 290.07 points, or 1.79%, to 15,885.02.

The impact of the conflict between Iran and Israel on markets

Potential growth in stock market indices was stopped due to concerns about a possible escalation of hostilities between Israel and Iran. As a result, Treasury yields rose, with the benchmark 10-year U.S. Treasury note hitting its highest level since November.

Geopolitical events always cause tension and uncertainty in the market, causing increased concerns about higher interest rates in the future. Israel faces growing pressure from its allies to show restraint and prevent an escalation of conflict in the Middle East.

The S&P 500 lost 2.64% over the past two trading sessions, its biggest two-day loss since March 2023. Additionally, the index closed below its 50-day moving average, a technical support level, for the first time since November 2.

The S&P 500 was supported by retail sales data

All 11 S&P 500 sectors posted declines, with the biggest declines in the interest rate-sensitive sectors real estate (.SPLRCR) and utilities (.SPLRCU).

Even though the S&P 500 suffered its biggest one-day percentage drop since Jan. 31, trading opened higher. This was supported both by data on retail sales in March, which turned out to be higher than expected, and by the rise in shares of some financial companies after the publication of their quarterly results.

Goldman Sachs shares rose 2.92% after the company’s first-quarter earnings beat Wall Street expectations. M&T Bank shares jumped 4.74% after forecasting annual net interest income that beat expectations.

At the same time, Apple shares fell 2.19%, becoming one of the fastest decliners on the S&P 500. This came after data from research firm IDC showed that the company’s smartphone shipments fell by about 10% in the first quarter of 2024. Tesla shares also fell 5.6% after news it was cutting more than 10% of its global workforce.

Trading volume on US exchanges totaled 11.53 billion shares, above the full session average over the last 20 trading days (11.03 billion).


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