(Bloomberg) -- One day after hitting an all-time high, US stocks are in retreat Tuesday and volatility is rising on reports that Iran is preparing to launch a ballistic missile attack against Israel within the next 12 hours.
The S&P 500 Index fell as much as 1.4%, its worst intraday decline in three weeks, with the information technology sector dragging down the index, which has since regained some of that decline. Apple Inc., Nvidia Corp and Microsoft Corp. were by far the biggest weights on the benchmark. Meanwhile, the Cboe Volatility Index, also known as the VIX, jumped sharply to the highest level in nearly a month.
“Middle East tensions clearly have markets on edge,” said Callie Cox, chief market strategist at Ritholtz Wealth Management. “Oil prices are up, bonds are up, gold is up, stocks are down. That’s the classic geopolitical reaction.”
Pricey equity valuations entering the fourth quarter have left some corners of the market exposed to any sudden shocks — geopolitical or otherwise — and that could be amplifying the selloff, some Wall Street pros said.
“While Middle East uncertainty is a huge overhang, the absence of valuation support is the real problem as it means equities have little air cover to absorb exogenous macro developments,” the Vital Knowledge newsletter said.
Here’s how other strategists and traders reacted to the swings:
Luca Paolini, chief strategist at Pictet Asset Management:
“An escalation in the Middle East would hit markets at a time when complacency is close to its highest level. In the very short-term, the impact can be meaningful — say a 5% correction — but we do not expect any escalation to derail the bull market, with trend growth, falling rates, strong seasonality and equity inflows all supportive.”
Sarah Hunt, chief market strategist at Alpine Woods Capital Investors:
“People start to worry that the port strike coupled with Iranians saying they’re going to start dropping ballistic missiles on Israel could be negative for growth. We had all time highs yesterday in a couple of indices and anything negative is going to rattle a market, which has been pretty optimistic.”
David Lin, founder and chief executive officer at Linvest21.AI:
“The oil market is highly sensitive to geopolitical risks in this region, and any disruption could lead to higher energy prices, adding inflationary pressure. Coupled with a nationwide strike by port operators, which threatens to further disrupt supply chains, these combined factors are increasing market uncertainty and driving investors to sell stocks in favor of safer assets like gold and bonds.”
Brian Mulberry, client portfolio manager at Zacks Investment Management:
“This is certainly an unstable moment, but our focus is always on the bottom-line impact to earnings. Combined with a possible long term supply chain disruption, there could be more volatility in markets over the next couple of months.”
Marko Papic, chief strategist for geomacro strategy at BCA Research:
“The Federal Reserve is cutting massively in a way that most investors did not expect. Chinese policymakers are talking about fiscal for the first time in a serious way. You have this global policy reflation. If you have not been shorting stocks for 12 months due to a war in the Middle East, why would you short them now?”
Joseph Saluzzi, co-head of equity trading at Themis Trading:
“The increase in oil prices due to geopolitical tensions will cause investors to get concerned about a rise in inflation. Also, a larger conflict could affect supply chains which also wouldn’t be good for inflation. Considering the market is hopeful for continued rate decreases, any change in inflation concerns could affect the pace of these cuts.”
Michael O’Rourke, chief market strategist at Jonestrading Institutional Services:
“As of now it is a reaction to the geopolitical news. The situation remains fluid so it is premature to draw additional conclusions. Generally speaking investors don’t want to take profits, they remain excited about the Fed’s easing prospects.”
Adam Sarhan, founder and chief executive officer at 50 Park Investments:
“The geopolitical tensions in the Middle East certainly pose a significant risk for U.S. investors if the situation escalates. Historically, such tensions have increased market volatility and driven investors towards safe-haven assets like gold, which has recently hit record highs.”
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