Market Turmoil: Stocks Drop Amid Middle East Tensions

U.S. stocks closed lower with the Nasdaq falling over 1% due to rising tensions in the Middle East after Iran fired missiles at Israel. U.S. military support for Israel led to gains in defense stocks and oil prices. Investors remain cautious with market volatility and upcoming job data.

On Tuesday, U.S. stocks ended lower, with the Nasdaq experiencing a drop of over 1%, as investor caution heightened following Iran's missile attack on Israel. The White House National Security Council stated that the U.S. military will support Israel's defense efforts and intercept missiles aimed at the country.

Despite the broader market decline, energy company shares rose alongside U.S. oil prices, which increased by 2.4%. Notably, Exxon Mobil's shares climbed 2.3%. Defense stocks surged as well, with Northrop Grumman and Lockheed Martin seeing increases of 3% and 3.6%, respectively. The S&P 500 aerospace and defense index reached a record high, while utility stocks rose 0.8%.

Conversely, airline shares such as Delta Air Lines fell by 1.6% as investors shied away from potential risks following the unsettling Middle East developments. Although market indexes closed above their daily lows, some analysts predict continued market volatility if the geopolitical situation worsens.

The Dow Jones Industrial Average declined by 173.18 points (0.41%) to 42,156.97, the S&P 500 decreased by 53.73 points (0.93%) to 5,708.75, and the Nasdaq Composite dropped by 278.81 points (1.53%) to 17,910.36. Earlier in the week, all three major U.S. indexes had reported significant gains for September and the third quarter.

The fear gauge of Wall Street, CBOE's market volatility index, rose. Meanwhile, August job openings in the U.S. showed a rebound, and the Institute for Management Supply's (ISM) report revealed manufacturing activity at 47.2 for September against a 47.5 estimate.

Investors are also cautious about upcoming jobless claims data and the monthly payroll report. CME Group's FedWatch Tool indicates a 38% likelihood that the Federal Reserve will decrease interest rates by 50 basis points in November.

The U.S. central bank began a new easing cycle by cutting rates on Sept. 18. Additionally, a port strike on the East and Gulf Coast has halted about half of the nation's ocean shipping, though it is not expected to create supply issues as severe as those seen during the COVID-19 pandemic.

Declining stocks outpaced advancing ones on the NYSE with a ratio of 1.32-to-1, and the Nasdaq saw a 2.36-to-1 ratio favoring decliners. The S&P 500 recorded 51 new highs and two new lows, while the Nasdaq posted 75 new highs and 137 new lows. U.S. exchanges recorded a volume of 13.16 billion shares compared to the 20-day average of 11.98 billion. (Additional reporting by Johann M Cherian and Purvi Agarwal in Bengaluru; Editing by Maju Samuel and Richard Chang)

(With inputs from agencies.)