Travel and leisure stocks bore the brunt of investor anxiety on Friday after Israel launched airstrikes on Iranian targets, stoking fears of an escalating conflict in the Middle East.
The strikes, aimed at crippling Iran’s nuclear infrastructure, rattled global markets and sent oil prices surging, sparking a classic flight to safety.
The S&P 500 Index dropped 0.5% in trading as investors retreated from risk.
Meanwhile, safe-haven assets such as US Treasuries and gold advanced sharply, with crude oil notching its biggest intraday gain since 2020.
American Airlines, United Airlines, fall on fears of tepid travel demand
Fears that a prolonged conflict could weigh on fuel costs and dampen global travel demand pushed airline and cruise stocks lower.
Shares of American Airlines Group Inc. and United Airlines Holdings Inc. led losses within the travel sector, dragging down the S&P index of airline stocks.
United, which suspended flights between Newark and Tel Aviv, added to investor concerns over route disruptions and rising fuel prices.
“All travel stocks with a global footprint react negatively to heightened geopolitical tensions,” said Robert W. Baird & Co. analyst Michael Bellisario in a Bloomberg report.
“Consumer sentiment and cross-border demand could be negatively impacted by the recent events in the Middle East and the associated negative headlines.”
Cruise operator Carnival Corp. fell 4.4%, while Expedia Group Inc. lost 2%.
An S&P gauge tracking travel booking platforms, cruise lines, and hotels is on pace for its worst weekly decline in over two months, having fallen for five straight sessions.
Oil rally boosts energy and defense stocks: Diamondback, Halliburton gain
In contrast, energy shares rallied as oil surged on fears of supply disruptions.
Diamondback Energy Inc. rose nearly 3%, while oilfield services firm Halliburton Co. gained about 4%.
Industry majors Exxon Mobil Corp. and Chevron Corp. also advanced as traders priced in risk premiums to oil.
The path forward for oil remains uncertain.
“Crude’s ultimate landing point will likely hinge on whether Iran revives the 2019 playbook and targets tankers, pipelines, and key energy facilities across the region,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.
Citigroup Inc. analyst Spiro Dounis, however, warned investors not to overreact, noting the “low risk of physical disruption” and predicting that bearish fundamentals could eventually weigh oil back down.
Defense and shipping firms see gains on military and logistics concerns
With Israel suggesting further strikes may follow, shares of US defense contractors also gained.
Lockheed Martin Corp. rose as much as 4.1%, while Northrop Grumman Corp. climbed 3.7%, as markets anticipated a rise in defense spending.
Shipping firms also benefited from the risk of conflict-related disruptions.
ZIM Integrated Shipping Services Ltd. advanced amid expectations that container freight rates could rise as vessels avoid the region and reroute around Africa.
Gold miners like Newmont Corp. also saw gains on the back of a rising gold price.
Caution prevails despite sharp market moves
Despite the swift market reaction, some analysts urged restraint.
“The response was traditionally risk off,” said Mark Hackett, chief market strategist at Nationwide.
“Still, the long-term impact of geopolitical events is usually limited in markets.”
“The impact is impossible to accurately calculate,” he added. “If the last three months have taught us anything, it is wise to wait for more information rather than emotionally react.”
With explosions reported near Tehran, Natanz, and other cities, and senior Iranian military figures reportedly killed, tensions are at their highest point in months.
Israeli Prime Minister Benjamin Netanyahu hinted at continued military operations, while former US President Donald Trump called on Iran to accept a nuclear deal “before it is too late.”
Markets are likely to remain volatile in the near term, as investors grapple with geopolitical uncertainty, energy market dynamics, and the prospect of a broader regional conflict.
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