US close: Rising yields and Israel conflict hammer stocks

(Sharecast News) - US stocks fell sharply on Wednesday as rising bond yields, a surge in commodity prices and escalating tensions in Israel dampened risk appetite on equity markets. The Dow finished down 1%, the S&P 500 slumped 1.3% while the Nasdaq dropped 1.6%.

The yield on a 10-year Treasury topped the 4.9% mark, as its steady climb to 5% continued in the wake of better-than-expected US economic data in recent weeks, raising uncertainty about how the Federal Reserve will act at its last two meetings of 2023.

On one hand, stronger growth and resilient labour market may urge the Fed to hike rates to cool the economy, yet many policymakers have already argued that higher bond yields on their own might do enough to restrict financial conditions.

"With higher energy prices, the return of student loan payments, higher rates across the curve and now further geopolitical uncertainty, the US economy will likely start to weaken again in Q4 and Q1 next year," said analysts at TD Securities. "We argue the Fed is done and is resorting to forward guidance by stating that they will keep rates 'higher for longer'."

Over in Israel, neither the government nor Hamas are taking responsibility for Wednesday's explosion at a Gazan hospital which killed scores of healthcare staff and patients. US president Joe Biden threw his weight behind Israeli prime minister Benjamin Netanyahu as he touched down in Israel to step up shuttle diplomatic efforts.

"Whoever turns out to be responsible, the facts no longer matter given that most people have already made up their minds, sending gold prices to four-week highs, and oil prices to two-week highs," said analyst Michael Hewson from CMC Markets.

Oil prices jumped sharply after Iran called for an oil embargo on Israel by member states of the Organisation of Islamic Cooperation - though OPEC said it is not making any immediate decision. West Texas Intermediate crude was 1.8% at $88.24 a barrel. Gold prices were up 1.4% at $1,962 an ounce on safe-haven demand.

Back in the US, building permits fell by 4.4% in September, after a revised 6.8% jump in August, but housing starts jumped 7% after a revised 12.5% decline the previous month.

Airline stocks drop

United Airlines shares tumbled 10% despite the company beating expectations with third-quarter results as it gave a gloomy outlook about the current quarter as a result of higher fuel costs and a suspension of flights to Israel. The company guided to an adjusted profit of $1.50-1.80 a share in the last three months of 2023, well below the $2.06 consensus forecast and $2.46 a year before.

American Airlines, which releases results on Thursday, also dropped sharply, along with Delta, with the whole sector lower on reports of airport shutdowns in France due to terror threats.

Morgan Stanley shares tanked after a disappointing showing from its wealth management division during the third quarter, though the company as a whole beat forecasts on both revenues and profits.

Nvidia was out of favour on the news that the US government is banning certain AI chip exports to China.