On Monday, Federal Reserve Vice Chair Philip Jefferson warned of persistent inflation upside risks and a potential sharper-than-expected economic deceleration. Despite these cautionary statements, Treasury futures and cross assets, including WTI crude prices (up 3.75 at 86.54) and SPX Eminis (up 18.0 at 4359.5), saw an upward trajectory.
The rise in oil, gas, and defense stocks can be attributed to the surprise attack by Hamas on Israel. This unexpected geopolitical event has driven up oil prices, favoring companies like Marathon Oil (NYSE:MRO) and Halliburton (NYSE:HAL), as well as Brent crude and US oil, which rose to $86.38 per barrel.
Barclays (LON:BARC) analyst Amarpreet Singh suggests that the conflict might slow down Iranian oil exports, further impacting global oil markets. Defense contractor stocks such as Northrop Grumman (NYSE:NOC) and L3Harris Technologies (NYSE:LHX) also experienced significant gains on Wall Street due to the ongoing Middle East conflict.
However, fuel-intensive companies like United Airlines and Carnival (NYSE:CCL) faced losses as major airlines suspended flights to Israel following travel advisories from the US State Department.
Despite higher rates, early 2024 rate hike projections are moderating with November's estimate at 14%, December's cumulative rate change at 6.9bp, January's projection at 4.4bp, and the Fed terminal expected to fall to 5.395% in Jan'24.
The S&P 500 rebounded after an initial dip due to positive interest rate news, hinting that Federal Reserve officials may not raise interest rates as previously anticipated. This news boosted all three indexes, providing a counterbalance to the economic uncertainties stemming from the ongoing inflation warnings and Middle East conflict.
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