Middle East Tensions Escalate Amid Iranian Missile Strikes on Israel
Tensions in the Middle East have intensified following a series of Israeli airstrikes across Gaza, Lebanon, Yemen, and Syria, culminating in Israel's announcement of limited ground operations in southern Lebanon. In response, Iran launched a significant missile attack against Israel, claiming to have successfully targeted key locations.
Iran's Supreme Leader, Ayatollah Khamenei, warned that the resistance front would deliver even more devastating blows to the Israeli regime. This escalation has heightened global risk sentiment, leading to sharp declines in U.S. stocks, a surge in oil prices, and a rise in gold.
In the wake of these developments, U.S. markets reacted negatively. The Nasdaq Composite fell over 1%, while the S&P 500 and Dow Jones also saw declines of 0.8% and 0.7%, respectively. Brent and WTI crude oil prices jumped, with WTI rising more than 3%. Gold prices also increased by over 1%.
As tensions escalated with further Iranian missile strikes, the market downturn deepened. By the end of trading, the Nasdaq had dropped over 2%, the Dow fell 0.41%, and the S&P 500 declined 0.93%. Notably, the energy sector of the S&P 500 saw a gain of 2.23%.
The VIX, known as the fear index, surged by more than 15%, reaching its highest level since September 12 at 20.73, reflecting growing trader anxiety. International oil prices continued to climb, with WTI crude futures spiking over 5%, settling at $70.83 per barrel. Gold and silver also closed higher, with gold rising by 1.07% to $2,684.80 per ounce.
Adding to the financial strain, S&P downgraded Israel's long-term rating to A with a negative outlook. The downgrade reflects the impact of the escalating conflict with Hezbollah on Israel's economy and public finances. S&P now predicts that military activities in Gaza and border tensions with Lebanon may persist until 2025, delaying economic recovery.
The firm has revised Israel's real GDP growth forecast for 2024 to 0% and for 2025 to 2.2%, citing increased defense spending as a factor that will likely lead to larger fiscal deficits in the near and medium term due to the heightened risk of direct conflict with Iran.