Stocks Jolted as Iran Hits Israel. ISM Services Data May Be Another Headwind.

Trimming of Fed rate cut bets for 2025 may sting stocks and boost the dollar.

• Financial markets scrambled as Iran fired a barrage of missiles at Israel.

• Crude oil spiked and stocks fell as haven flows lifted gold and the U.S. dollar.

• Stocks may not like it if ISM services data dilutes the 2025 Fed rate cut outlook.

The markets shuddered as Iran fired hundreds of missiles at Israel. Initial reports point to about 200 ballistic weapons fired toward a broad swathe of Israeli territory, including major population centers. While videos circulating online seemed to show some isolated projectiles making landfall, the Israeli Red Cross reported no casualties after the attack.

The Islamic Republic’s Revolutionary Guard Corps (IRGC) issued a statement threatening to target Israel again if it retaliates. A spokesman for Israel’s military called the attack “serious” and said it will have consequences, adding that the response will come “at the appropriate time and place.”

Financial markets rattled as Iran fires missiles at Israel

Crude oil prices raced higher, erasing an intraday loss of nearly 3% to probe within a hair of $72 per barrel (bbl), the highest in a week. That marked a rise of more than 5.2% from the session open before the panic eased. The West Texas Intermediate (WTI) crude oil benchmark is heading into the close with a gain of 2.7%.

Wall Street was far from immune, with the bellwether S&P 500 stock index and its tech-tilted Nasdaq 100 counterpart falling as much as 1.26% and 2.05%, respectively, before trimming losses to 0.6% and 1% as the dust began to settle. Gold prices added 1%, and the U.S. dollar rose 0.26% against an average of major currencies.

Market-watchers could hardly be blamed for overlooking the day’s macroeconomic offerings amid such tumult. Nevertheless, September’s manufacturing survey from the Institute of Supply Management (ISM) offered some curious insight about the trajectory of U.S. economic growth.

Stocks may not like firm ISM service sector data

Activity in the sector shrank for a sixth consecutive month, as expected. The pace of contraction matched that August, when conditions modestly improved after the year’s worst reading so far was recorded in July. On balance, this speaks to some modest anchoring after four months of accelerating contraction beginning in April.

A look under the surface seems to endorse this cautiously optimistic interpretation. Measures of new orders and production shrank at a slower rate, with the latter nearly back to growth. Inventories fell sharply and prices dropped for the first time since December. Supplier deliveries slowed, which may portend a pickup in demand.

On balance, this speaks to an economy on somewhat sounder footing before ISM releases the companion service sector survey, which captures a far larger share of output and employment. Economists are penciling in steady growth at a rate broadly unchanged since July’s rebound from June’s shock contraction.

The S&P Global version of PMI statistics painted a similarly benign picture last week. However, data from Citigroup suggests U.S. economic news flow has improved relative to median forecasts of recent weeks. If that foreshadows unexpected strength, a trimming of Fed rate cut bets may sting stocks and boost the dollar.

Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro. 

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.