US stocks were red on Tuesday, as oil prices spiked following reports of an increase in tensions in Middle East.
The Dow Jones Industrial Average dropped 187.37 to 42,144.78 at the time this article was written.
The Dow Jones Industrial Average had fallen 300 points earlier in the day. S&P 500 fell 60 points to 5,702.59 while Nasdaq dropped 325.20 point to 17,863.97.
The tech stocks in the US dropped sharply after reports that Iran was preparing a ballistic attack against Israel. This move risks escalating conflict in the oil rich Middle East, which threatens to draw in major regional powers and the US.
After the news, US oil and defense stocks surged.
Tech stocks fall sharply
Apple’s stock dropped 3.4% on Monday, while Microsoft Corporation fell more than 2% following reports about an escalation of violence in the Middle East.
On Tuesday, shares of NVIDIA Corporation and other notable names, such as Oracle, fell more than 3%. Cisco Systems Inc. shares also dropped 1% on the same day.
HP Inc. and Dell Technologies, both of which dropped 4%, were also among the worst performers within the technology sector.
Defense stocks surge
The Middle East tensions are likely to increase demand for military equipment.
Kratos Defense and Security Solutions Inc., a manufacturer of weapons and military electronic products, grew by more than 5% Tuesday.
In early trading, other notable defense stocks, such as Northrop Grumman (maker of the B-21 stealth Bomber) and Lockheed Martin (prime contractor for the F-35 Fighter), each gained 3%.
Crude oil prices spike 4%
After reports that Iran was preparing an attack on Israel, oil prices rose more than 4% in value.
Brent and West Texas Intermediate crude oil prices were in the red for most of the day as investors’ confidence was dampened by a firm outlook and poor demand.
Brent crude oil is now $74.39 a barrel, an increase of 3.8% over the previous closing price.
The tensions in the Middle East grew dramatically over the last week. Israel continued to launch attacks on the Iran-backed Hezbollah militia group and claimed that it had dispatched troops to southern Lebanon.
In the coming sessions, the impact of the oil market will be evaluated. Despite the escalating tensions in the Middle East there has been no sign of a risk to crude oil supply from this region.
The market is now focused on the poor growth of demand for crude oil in China, and the possible increase in supply by the Organization of Petroleum Exporting Countries (OPEC) and its allies starting December.
Focus on economic data releases
Investors are now awaiting the release of Friday’s non-farm payrolls and the US unemployment rate.
The markets will be watching the release of the US unemployment claims report on Thursday. This report shows the number of Americans who filed for unemployment insurance the first time in the past week.
These data are used by Federal Reserve to determine the state of the US economy. Investors are eager to find out if these data will prompt the Fed’s interest rate cuts by the end this year.
At its last policy meeting, the US Fed cut interest rates by 50 basis points for the first time since four and a quarter years to begin its monetary policy ease cycle.
Updates may alter the post US markets plunge in red as oil and defense stocks surge.
