Nasdaq, S&P, Dow fall as Israeli military says Iran launches missile attack

Major U.S. equity averages dropped Tuesday, starting October trade with the Israeli military saying Iran has launched a missile attack against Israel.

Oil prices (CO1:COM) (CL1:COM) jumped, haven assets such as gold (XAUUSD:CUR) rose, and defensive stocks moved higher. The Israel Defense Forces’ announcement about the attack comes after Israel killed Hezbollah leader Hassan Nasrallah on Friday, and after the Israeli military invaded southern Lebanon on Tuesday.

The Nasdaq Composite (COMP:IND) -1.9%, with nearly all Mag 7 stocks, including Nvidia (NVDA), down. The S&P 500 (SP500) -1.2%. The Dow (DJI) -0.6%. The Information Technology sector fell -3.1%, pacing eight other S&P 500 (SP500) sectors lower. The Energy sector +2.5%, rising with Utlities.

Earlier Tuesday, several media reports said Iran was preparing to imminently launch a ballistic missile attack on Israel. The Israeli military said troops were seeking Hezbollah targets in the border area. The United States will help to defend Israel against the possible strikes, the White House official said.

Investors snapped up Treasury bonds, sending yields down. The 10-year Treasury yield (US10Y) fell basis 6 points to 3.73%, and the 2-year yield (US2Y) fell 3 basis points to 3.62%.

Brent (CO1:COM) +3.9% above $74/barrel and WTI (CL1:COM) +4.3% above $71/barrel. Spot gold (XAUUSD:CUR) +1.3% to $2,669 per ounce on haven bids, and also approached the record high reached after Federal Reserve Jerome Powell on Tuesday signaled smaller rate cuts ahead.

Shares of U.S. aerospace and defense companies including Lockheed Martin (LMT) and Northrop Grumman (NOC) rose, with (LMT) up +3.4%.

October trade got underway after the benchmark S&P had seen its best performance through Q3 in the 21st century, Deutsche Bank’s Jim Reid noted. But some less-than-dovish comments from Powell on Monday diminished some of the bullishness.

“Powell’s remarks led to some doubts over whether the aggressive pace of the easing cycle priced by markets would materialize,” Reid said. “While maintaining data-dependence, he emphasized that the economy remains solid, noting that ‘this is not a committee that feels like it’s in a hurry to cut rates quickly.'”

The odds have swung back to a 25 basis point cut at the November FOMC meeting. Fed funds futures are pricing a 60% chance of a quarter-point reduction.

On the economic front, the U.S. Manufacturing PMI edged down to 47.3 in September from 47.9 in August, but still topped the 47.0 consensus level.

Job openings unexpectedly jumped in August, per the JOLTS report. The August Job Openings came in at 8.040M versus the 7.640M expected level.

At the same time as JOLTS, the ISM Manufacturing PMI contracted for the sixth straight month in September. The ISM Manufacturing PMI remained unchanged at 47.2 in September compared to August, trailing the 47.6 consensus level.