Investors Flock to Safe Havens as Conflict Continues: Gold and Bonds Surge Amid Uncertainty
Oct 11, 2023
Investors Flock to Safe Havens as Conflict Continues: Gold and Bonds Surge Amid Uncertainty
By:JJ Kinahan
Bonds and equities extend rally, CEO appointments, earnings reports and Exxon's acquisition deal
- Markets prove to be resilient, extending the rally amid global tensions. Bonds surge, oil prices retreat and the VIX contracts.
- Safe havens like bonds and gold see increased investor interest; watch for bond reactions to PPI.
- Individual stock news that's shaping stock market dynamics includes CEO appointments, earnings releases and acquisitions,.
As markets continue their rally amid global tensions, this overview delves into the recent performance of equities, bonds and oil, while highlighting key developments in individual stocks.
The rally that commenced last Friday continued through yesterday, with the S&P 500 gaining 0.5%. Notably, 10 of the 11 sectors were higher on the day, signifying broad-based strength.
The Nasdaq Composite also followed suit, closing higher by 0.6%. Bonds joined the rally, marking their best performance since August. In premarket trading, both the S&P 500 and Nasdaq Composite have gained just under 0.5%, while bonds surged over 1.3%, driving the yield on the 10-year note to a two-week low.
Oil prices retreat
In recent days, oil prices have taken a step back, dropping from highs of $95 per barrel to close at $85.97/barrel yesterday. This downward trend has translated to lower gasoline prices, with the average cost per gallon now at $3.66, down from $3.83 just a month ago. The reduction in oil prices is welcomed by the markets, as it eases concerns of surging inflation that could prompt the Federal Reserve to raise interest rates.
The outbreak of conflict in Israel has prompted investors to seek refuge in traditional safe havens like bonds and gold. Bonds have rallied nearly 4.5%, while the price of gold has risen more than 3% since Thursday.
The market will closely watch the reaction of bonds to the latest producer price index, or PPI, data. Additionally, the release of minutes from the recent Federal Reserve Open Market Committee (FOMC) meeting is anticipated today.
Individual stocks
Several individual stocks made headlines in the morning. Walgreens Boots Alliance (WBA) announced Tim Wentworth as its new CEO, and the company is set to unveil its earnings report tomorrow before the market opens. Delta Airlines (DAL) and Domino's Pizza (DPZ) will also release their earnings.
Exxon Mobil (XOM) reached an all-stock deal to acquire Pioneer Natural Resources (PXD) for nearly $60 billion, valuing Pioneer 7% above its closing price on Tuesday.
General Motors (GM) reached an agreement with the Canadian Auto Workers, potentially signaling a positive outlook for negotiations with United Auto Workers.
Finally, Birkenstock (BIRK) is set to begin public trading after pricing its initial public offering (IPO) at $46 per share.
Today's focus lies on bonds and their reaction to the stronger-than-expected producer price index (PPI). The recent bond rally has led to a significant drop in yields, reducing the likelihood of a Fed interest rate hike next month to under 11%, with less than a 30% chance of a rate increase in December. Additionally, the VIX has contracted by 16% since Monday, suggesting a reduction in market volatility.
In these dynamic times, it's essential for investors to stay informed and stay the course with their investment plans and long-term objectives. While short-term market fluctuations occur, it's important to maintain a strategic perspective.
JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan
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