U.S. Stocks Shake Off Rising Middle East Tension

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Wall Street shrugged off rising tensions in the Middle East on Monday, even as oil prices rose and stocks outside the United States sank.

The S&P 500 wobbled early but regained its losses and closed 0.4 percent higher for the day.

The resilience of the American market reflects, in part, the emergence of the United States as the world’s largest oil producer — and therefore, in part, a beneficiary of rising oil prices.

“The Middle East matters far less to the U.S. today than a decade ago,” Robert Bilkie, chief executive at Sigma Investment Counselors in Northville, Mich., wrote in an email.

But Monday’s rally also underscores ingrained investor expectations that the Federal Reserve will continue to take steps to bolster the economy and cushion financial markets.

The Fed cut interest rates three times in 2019, helping to drive the market to one of its best years in decades. The S&P 500 rose 28.9 percent last year.

“The narrative is you’ve got to buy stocks as long as the Fed is there and not raising interest rates,” said Ricardo Cortez, co-chief executive of Broadmark Asset Management in San Francisco.

On Monday, energy markets bore the brunt of the rising tension between the United States and Iran that followed the American killing of a powerful Iranian general. The State Department warned of a “heightened risk” of a missile attack near American military bases, Iran said it would abandon the 2015 nuclear agreement, and Iraq vowed to expel American troops from the country.

Brent crude, the international benchmark for petroleum, briefly jumped above $70 before closing at $68.91 a barrel, up 0.5 percent. Benchmark American crude oil prices were up 0.3 percent, at $63.27 a barrel.

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Stock markets in oil-reliant nations like India and Japan faced steeper drops in overnight trading. Japan’s Nikkei dropped 1.9 percent, as did India’s key stock market benchmark, the Sensex.

Shares also declined in Europe. Markets in Frankfurt, London and Paris were all down more than 0.5 percent.

There was also some selling in the United States resulting from the rise in energy prices. Shares of companies with significant exposure to fuel costs —  shipping and logistics firms and airlines — fell.

Shares in the discount retailers Dollar Tree and Dollar General, whose customers tend to have lower disposable income and higher sensitivity to increased gas prices, both dropped around 1 percent.

Reflecting investor nervousness, yields on Treasury bonds — which move in the opposite direction of prices — dipped as investors sought out the relative security of government bonds. The yield on the 10-year Treasury note fell to 1.76 percent in early trading, before rebounding to close at 1.81 percent.

Gold, traditionally viewed as a both a safe haven and a hedge against higher inflation, rose about 1 percent to finish at nearly $1,566 an ounce, the highest level since April 2013.

Still, the market reactions related to the growing risk of armed conflict in the Middle East were relatively subdued compared to past flare-ups. For instance, in September, after a strike on a Saudi Arabian oil production facility attributed to Iran, prices for Brent crude jumped 14 percent in a day.

And as far as the American stock market is concerned, observers suggest that investors have grown increasingly confident that the Fed’s low-rate policies will help cushion the market from any jolts, as they did last year in the face of the ongoing trade conflict with China.

“Both the Federal Reserve and the administration seem more sensitive to the stock market than in previous decades and appear willing to take action to support the market should it falter,” David Kelly, the chief global strategist at J.P. Morgan Asset Managment, wrote in a client note Monday.