By Caroline Valetkevitch
NEW YORK (Reuters) -U.S. stocks ended lower, with the Nasdaq losing more than 1%, on Tuesday as investors grew more cautious after Iran fired missiles at Israel.
Iran launched the salvo of ballistic missiles in retaliation for Israel’s campaign against Tehran’s Hezbollah allies. In response, U.S. President Joe Biden directed the U.S. military to aid Israel’s defense and shoot down missiles aimed at Israel, the White House National Security Council said.
While the broader market fell, shares of energy companies rose along with U.S. oil prices, which settled up 2.4%.
Defense stocks also rose, including Northrop Grumman (NYSE:) and Lockheed Martin (NYSE:). The aerospace and defense index climbed to a record high. Utilities were also up.
Airline shares fell, including Delta Air Lines (NYSE:).
Investors avoided risk following the Middle East news, but indexes ended off their lows of the day.
“I hope we don’t see further escalation, but if we do see further escalation I could see continued market weakness because we just don’t know how far this is going to go,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“The level of risk has increased. The markets have had a good year and people can get scared out of the market depending on what happens over the next couple of weeks.”
On Monday, the three major U.S. indexes scored strong gains for September and for the quarter.
According to preliminary data, the S&P 500 lost 54.01 points, or 0.94%, to end at 5,708.47 points, while the Nasdaq Composite lost 279.35 points, or 1.54%, to 17,909.82. The Dow Jones Industrial Average fell 171.76 points, or 0.41%, to 42,158.39.
CBOE’s market volatility index, Wall Street’s fear gauge, rose.
Data released early on Tuesday showed U.S. job openings rebounded in August, while the Institute for Management Supply’s (ISM) report showed manufacturing activity stood at 47.2 in September, versus estimates of 47.5.
Investors were also cautious ahead of U.S. jobless claims data on Thursday and monthly payrolls on Friday.
Traders are pricing in a 62.2% probability that the Federal Reserve will lower rates by 25 bps at its November meeting, the CME Group’s (NASDAQ:) FedWatch Tool showed. Bets on a bigger 50 bps cut stand at 37.8%.
Investors also were keeping an eye on a port strike on the East Coast and the Gulf Coast, halting the flow of about half the nation’s ocean shipping.
The strike that began on Tuesday is not expected to cause global supply problems as deep or severe as during the COVID-19 pandemic, but it still creates more economic uncertainty for Fed policymakers to assess.
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