Power Lunch - S&P 500 falls, Nasdaq drops 1% as oil spikes on escalating Middle East tensions 10/1/24

Episode Date: October 1, 2024

Stocks fell Tuesday as growing tensions in the Middle East poured water on investor enthusiasm coming off a strong quarter. We’ll cover this story from all angles for you. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

All right, welcome to Power Lunch. An eventful afternoon so far alongside Kelly Evans, I'm Dominic Chuth. Stocks are, as you might imagine, falling today as tensions heat up in the Middle East. And right now, Kelly, we are off our worst levels so far today, but still just looking at things that you can see the Dow down maybe a quarter of a percent. The S&P down by about three quarters. It was down more than a percent at one point. The NASDAQ was down in excess of one and a half percent. It's now down one in three quarters or one in the third percent at this stage. So, yes, we are seeing downside. But I think there's a lot of folks on Wall Street who are trying to stay a little bit more measured right now, Kelly, about what's going on right now. Sure, the VIX has settled down somewhat as well.

Israel defense forces are saying Iran launched those missiles into Israel. And Israel is saying the attack was serious and will have consequences. By the way, they also are saying as far as they could tell it, the most. there were no casualties from the missile attacks. There were other incidents, not just the missile attack, there was a shooting, there were other things happening on the ground. And it wasn't, I think the world was caught watching the live feeds from across Tel Aviv and perhaps just looking at all of these sparks and light floating around the sky and how many of those actually hit the ground and exploded. For that reason, there was the sense, at least, that given the shelter and place

orders, given the air rate sirens that went off relatively early compared to when the first missiles kind of crossed in and looked like they might be heading towards Tel Aviv. The casualty account was a little bit, maybe hopefully, on the lesser side of things. But it's certainly something where the markets played it out in real time, never got to an extreme moment of panic and are now starting to be a little bit more, let's just say, measures about the way that this is playing out right now. Let's bring a contest to Brewer now. She's at the breaking news desk. She's got the latest on the story for us. Contessa.

Yeah, Kelly, Dom, Israeli citizens have now been given the all clear. They can leave bomb shelters following that barrage of missile attacks aimed at the country. Israel Army radio said it was about 200 missiles fired. At this point, as Dom mentioned, it appears the injuries are limited. There may have been a couple shrapnel wounds near Tel Aviv. The Israel Security Cabinet has convened the military spokesperson there described this onslaught as serious and said there will be consequences. Iran has said its supreme leader, Khomeini, ordered the attacks as retaliation for Israel's killing of the heads of Hezbollah and Tamas.

And Iran is now warning, if Israel responds or commits further violence, it will deliver a, quote, unquote, crushing response. Israeli airspace has been closed while all of this unfolded, but we're told it will resume air traffic in this hour. Lebanon, Iraq, Jordan, also shut down there. airspace. U.S. Embassy staff and other government employees had been ordered to shelter in place. And President Biden has commanded the U.S. military to aid in Israel's defense and shoot down missiles. He's been in a meeting with Vice President Kamala Harris this afternoon and other senior security

officials. And the U.S. earlier warned Iran there would be consequences for any air strike against Israel. We have not heard what the U.S. may intend in terms of consequences, but and Israel is not being clear either except to say there will be some. But we have also heard some chat from Iraq's forces saying that if the U.S. acts, then it will act. So basically where we are is at this standoff. The U.N. Secretary General has just issued a statement on X saying, I condemn the broadening of the Middle East conflict with escalation after escalation, quote, this must stop. We absolutely need a ceasefire. As we get new more developments here, Kelly, we'll bring them to you.

Contessa, thank you, Contessa Brewer. For more on Iran's attack on Israel and the rising tensions in the Middle East, let's bring in Michael Rubin, senior fellow at the American Enterprise Institute and Director of Policy Analysis at the Middle East Forum. Michael, it's great to have you here,

and what are your thoughts this hour? Hey, Kelly, thank you. Well, first of all, I'm glad to see that the barrage is over and that casualties are minimal. But before we celebrate the fact that so many of these missiles were shot down or missed their target. Remember, as in last April, when Iran sent its previous barrage, if only seven or eight missiles get through,

but those seven or eight have chemical, biological, or radiological warheads, then we're talking a whole different ballgame. I'm afraid now that this has happened twice, that the Israelis are going to be tempted to respond and respond hard. I think we're now in the last days of the Islamic Republic of Iran. a hard response look like something aimed at the oil facilities, at the nuclear ones? Well, if Israel were to strike at the nuclear facilities, their pilots aren't suicidal, so they might go in with surprise, but they're not going to be able to fly out with surprise. So first,

they're going to need to take out command and control and anti-aircraft batteries. But I suspect they're going to do what the Israelis did with Ismail Haniyah and Hassan Nasrallah. They're going to go for the head of the octopus, hoping then that the tentacles will wither away. I believe that what they're going to do is go after Supreme Leader Ali Khomeini and the top leaders of the Islamic Revolutionary Guard Corps to try to leave a vacuum at the top. The woman life freedom movement protests that began just over two years ago showed that the regime has very little legitimacy among the Iranian people. The challenge is going to be, how do you take out the regime, with the regime?

antagonizing the Iranian people. Michael, it's Dom. To that point, can you take us through what you hypothetically think? Think hypothetically would be the ripple effects or the next response from them. Let's say they do go that route and they do start an active engagement, a war, if you will, between Iran and Israel. If you were to go about that path that you spoke of, do you then have to move troops in? Is there anything that has to happen beyond that that could escalate or bring other parties from the Middle East, other countries into that conflict as well?

As you know, I used to teach as a civilian on Navy ships. And when I would ask admirals to a man and a woman what they would say, if you want the Iranians to take American diplomacy seriously and understand the need to stand down, what you need to do is remove U.S. air, aircraft carriers from the Persian Gulf. That may sound counterintuitive. But if our aircraft carriers are 400 miles away in the northern Indian Ocean, the Iranians and the Islamic Revolutionary Guard Corps will know we can strike at them, but they can't strike back at us. So actually, no, there should not be American troops present. There should not be boots on the ground. This is not Iraq. What Kelly said before, with regard to oil, remember that most, because Iran's sure, is very shallow and very rocky. Most of Iran's oil exports occur from offshore oil terminals.

The question then becomes whether the United States and our special forces, as during the Reagan administration, will go after those and target those more precisely. Is there the possibility of a more modest Israeli response here, Michael, and what would that possibly look like? Well, Kelly, there is, of course, a more modest response that could be possible, and Israel would have a range of targets. Iranian ships that are supplying the Houthis, for example, the Islamic Revolutionary Guard Corps leadership, generals, and so forth. There's a whole menu.

Look, from Israel's point of view, in 1981, they took out the Iraqi nuclear program, and in 2007, they took out the plutonian processing plan in Dara, Syria. Iran is a much more complicated problem set because it's six times the size of Great Britain, four times the size of Iraq, and the program, the targets are far more desperate. The only good news here is if Israel or the United States wanted to take out the underground nuclear facilities. They don't need to destroy those facilities that are buried under mountains. They only need to take out the entrances and the exits. And Michael, this is all about what's happening in terms of the aerial strike between the two.

NBC News, I would also point out as reporting that at least six people were killed and nine injured in a shooting incident in Tel Aviv. That's according to two U.S. officials. The incident, they say, involved at least one shooter who got off a mass transit vehicle and started firing a semi-automatic rifle. Those officials do say again. It appears as though it's not just the airstrikes coming from there, but within the own borders of Israel as well, there could be terrorist-type activities. How consequential would that become if it's not just fighting from outside the walls, but inside the walls as well? Well, make no mistake. Israel feels that it faces an existential threat, and Israel is no stranger to having to deal with terrorism within its midst. But what's different now is that Israelis feel that they have a ticking clock to do what they need to do because they are afraid that a new administration, especially if it's a Kamala Harris administration,

would try to restrain Israeli response, counterterrorism, operations, and so forth. Right now the Israelis feel that they are going to be criticized no matter what they do, so it's a matter of in for a penny, in for a pound. As long as they're criticized, they might try to do their counterterrorism operations as completely as possible. But if they feel that the United States might cut off support as some of the progressive wing in Congress wants them to do, then that's actually increasing the incentive for Israel to have these fights now, both internally with regard to counterterrorism as you asked, Dom,

and also externally as we see with regard to Lebanon. And as I suspect, we are going to see much more with regard to Iran and the Houthis in Yemen. Just circling back to Gaza, Michael, where does this leave prospects for some sort of ceasefire or end to the conflict there? Well, the question in Gaza is there's two questions. Number one, whether Israel is spreading itself too thin. And the second question is whether or not Israel is going to go for some negotiated settlement or whether they're going to go for complete victory.

The way I see it is when you have a hornet's nest, you have two good options. One is to get rid of it, the other is to leave it alone, but the worst possible option is to come down in the middle and stand underneath it lightly tapping it with a stick. For the past 30 years of diplomacy, that has been the U.S. strategy. That is what the Israeli Prime Minister, Bibi Netanyahu, is saying, is no longer tenable. And less Americans think that the issue here is just Israeli Prime Minister Benjamin Netanyahu. Make no mistake, there's broad consensus from left to right inside Israel with regard to counterterrorism policy. Michael, thanks for joining us at this hour. We appreciate your time.

Thank you. Michael Rubin with AEI. All right. to come on the show, this growing conflict in the Middle East is not the only economic risk that could reverberate on a massive scale here in the U.S. A major port strike could derail recovery and rate-cut efforts. We have more on that economic story on the home front coming up next. All right, welcome back, turning to another major global economic risk, the massive U.S. port strike hitting the East Coast and Gulf Coast of America. Nearly 50,000 members of the International

Longshoremen's Association walked off the job at mid-day. night as a deadline for a new labor deal passed without any kind of a resolution. Now, as a result, 36 seaports from Maine to Texas are currently shut down. Moody's estimates it could cost the American economy around $2 billion per day. For more, let's bring in Adam Kamins, an economist at Moody's analytics. Also, Peter Sand is the chief shipping analyst as Zaneda. Thank you both gentlemen for being here. Let's start with you, Adam, with regard to just how big of a deal. We've seen the estimates range widely. How did you come up with the number that you put on the economic impact of this port strike? Sure. So there's a variety of ways to look at this, but what we're looking at

primarily is the amount of cargo that's handled in the different ports that are affected by the strike. Understanding there's some offset from some of the, some of that cargo being moved to other ports, companies stockpiling inventories. But when all of a sudden done, we think that number represents about the amount that is exposed and that is going to lead to economic losses in the near term. Although it's worth keeping in mind, right, that that number is not static. That as we go, the longer this strike goes on, the more likely that those daily losses are going to increase even on a day-to-day basis. Peter, we've spoken to and heard from a number of shipping and logistics-related analysts

who've talked about the idea that the first impact, the frontline impact of this will be in things like fresh produce, perishable goods, harder durable goods may have been warehoused or have the ability to be warehoused. What exactly does it mean for the U.S. consumer? How quickly will Kelly and I and everybody else start to feel the real price impact at the stores that we shop at? Within a few days, you will probably see the impact from fewer perishable goods to choose from when you go shop groceries, right?

Those are the time-sensitive imports, and those that. that you will probably see fast moving, right? So there will definitely also be fierce flashback to the ever-given situation. Some of you may still have that pretty fresh in your memories from the end March 2021, when one giant container ship got stuck in the Suez Canal, and all of a sudden you found out how much you rely on just entire deliveries to do your everyday lives grocery shopping from everything from, well, clothing to what you need in the toilet room, perhaps. Adam, do you agree with those who think that commodities could spike in price as a result of this?

I think commodities could increase in prices. I think a spike is probably a little bit strong. I expect that if this strike continues for a number of weeks that we are going to see some price increases as a result of the shortage. in supply. But I don't think it's enough that it's going to royal a consumer necessarily. What I worry about more is that we lose some of the progress that we've been making with respect to inflation and that the Federal Reserve may be us to pause cutting interest rates. And that could have some broader economic ramifications. Adam, could I just follow up really quickly on that one point? We've talked a lot about the goods side of things on this equation. The reason why these workers are striking is

for better pay. We've heard reports that it's a 50% pay bump that was on the table, scaled in over six years, that was rejected. What exactly then does the longshoreman's personal finances and economics look like if that's the deal they just turned down? What is it that actually gets them to say yes to a potential labor deal? Well, it looks like they're looking for something, I believe, closer to 80%. I would imagine in terms of the numbers, they're very far apart. I'd, I guess, ideally want to see the sides meet in the middle, I'm a little bit more worried about some of the demands around automation and trying to either eliminate or have some guarantees around automation. That seems a little bit more intractable to me. That's sort of, you know, something that it may be

a little bit tougher to find a middle ground on. So that's going to take some work. I would imagine in terms of the numbers, we probably see the sides meet somewhere in the middle in the end, but it may take some pain to get there. Peter, a quick last word. I totally agree that the hardest not to crack is that on automation because the US ports are not as efficient as ports in the 21st century should be. When comparing the performance on the East Coast and Gulf Coast to that anywhere else in the world, they're really not doing well.

But I think it's also relevant to point to the fact that a lot of Cinellas customers point to benchmark their own freight procurement. performance. And I think we've already seen spot rates spike to some extent on the transatlantic trade lanes to some 20 percent right now. And I think we can only see that trending upwards as the strike continues for up to one week is how we see it. All right. Gentlemen, for now, thanks, Peter Sand. Adam Kamens, we appreciate your time. And still to come, we've broken down these major economic risks. So let's take it all and figure out the best way to position yourself. with the Dow now way off session lows and trying to make a go to turn positive.

It's down 30 points right now. Power Lunch is back after this. Welcome back to Power Lunch. The Dow is well off the session lows. Down only 43 points right now. And the VIX index is off of its highs. S&P for its part, down six-tenths, NASBITDAQ, 1.2%. Let's dive into some stocks, try to make sense of this uncertainty for what it means for investors in the U.S.

Adele Zamondis here. He's a partner at the Wall Street Alliance, and it's great to see you again. A big picture, does today, I mean, people are talking about maybe on the margin a little bit more inflationary pressure in the economy, even we just heard in that port strike discussion, does it possibly even keep the Fed from doing further rate cuts? Are you concerned about anything like that? I don't think so. I think that short term, it could definitely cause a correction. And we feel that investors at this point in time should be hedging their portfolio and have exposure to gold and to energy as a hedge. And also we spoke last time I was on the show, we spoke about the concentration. risk in the market. So investors should increase the breadth in their portfolio. Long term, we feel the market is still headed higher. I think it's interesting as well, because when we talk about this notion of the overall economy, it's also one where geopolitics figures into the Fed. We know this. But given what you've seen so far today, how frightened or how much importance

should the Fed put on the Middle East conflicts in particular for its economic outlook in the coming, say, six to 12 months. Yeah, so I think the Fed told us that they're going to be watching this very closely. That's what we got from what Powell's comments are, and they're going to be accommodative as needed. I think that the Fed, basically, their goal right now is to be in a sort of a sweet spot, so they want to freeze things the way that they are. So I think the Fed is going to come in, and they're going to accommodate as needed, and they're going to keep a very close eye on these developments. Let's talk to some of the specific stocks that you like. I mean, that's a huge part. sort of the debate right now. Home Depot, Caterpillar, I mean, walk me through names that you think

are especially areas that people can kind of find some alpha and it just might be well positioned for everything that's going on in the world. Sure. I think that, you know, with the recent accommodation by the Fed, I think one of the things that we are going to see is that major economic collapse is off the table, right? So the affluent customers, they continue with their spending minor economic blips don't really impact them. So on the high-end businesses that are catering to the high-end consumers, for example, American Express, which charges a high fee as well as a higher exchange rate, they will continue to benefit.

I think with Home Depot, we tend to like that because of the housing play. I mean, we got a glimpse from restoration hardware as to how those type of companies would respond to the rate cuts. I think Home Depot is another great one, and it also pays a great deal. which is a big theme for us. You know, we talk about, at least we reported this last hour, about the number of defense stocks that are either making new record highs or at least one year highs or beyond. We mentioned names like RTX, we mentioned names like Northrop Grumman, you know, Lockheed Martin.

Would you chase some of these defense gains into what you've seen today? And if so, is there a role for defense in your portfolio? And if so, which ones do you like? So we definitely think that you must have. exposure to the defense names in the portfolio because given the geopolitical tensions, whether the Democrats win or whether the Republicans win, there is going to be continued increase in defense spending. So having defense stocks in the portfolio is very important. We like Lockheed Martin. We also feel that for the same reason for the geopolitical tensions,

having gold in the portfolio makes a lot of sense. So we have Spider, Gold, ETF, GLD for our clients. That has done really well. We think it continues to do well because of this volatility. Plus, with rate cuts, dollar becomes weaker, gold becomes stronger. And having oil in the portfolio as a hedge makes a lot of sense also, right? Because if you look at a company like ExxonMobil, it's trading at relatively low valuations. The break-even on oil for them is very low, and it pays a very good dividend. So these are the type of stocks that we would have in the portfolio to provide it more of a balance and a hedge. And even Home Depot.

I mean, do you do anything with the Mag 7 at this point? So our, I think those are core positions. You must have them in the portfolio. But a big concern that we have right now is the concentration risk in portfolios, right? We spoke about that last time. And I think that you're seeing that play out somehow. So if you look at the NASDAQ since July 10th, it's negative. But there are other sectors that are going up.

So I think breadth in the market should improve. All right. Breath is good, I think. All right. Adelaan. Thank you very much. We appreciate it, sir. All right.

Well, bond yields are falling along with stocks today on the Middle East conflict, but also a weak reading on the manufacturing sector with the PMI coming in below analyst estimates. Let's get out to Rick Santelli in Chicago with more on that macro picture in the bond report, Rick. Yes, Dom, if you look at a two-day chart of twos and tens on the same graph, it's quite illuminating. First thing I want to point out is that we made our low yields well before the missiles started to fly. Now, granted, it's been a yields down day. But two-year note yields were made the low of the session at 356 at 940. They're currently at 362. Tens made their low yield at 10 o'clock Eastern at 369, currently at 374.

That's one thing to notice. The other is that 10-year note yields are trading under yesterday's lows. Two-year note yields are not. Short maturities once again are leading the way down, and that's re-flatening the yield curve, taking some of that steepness way, and we have been positive for about three weeks now in that Tuesday. to 10 spread. Also, there was news in Europe about their inflation. And very similar to the U.S., many of the metrics with their CPI were good news. They were lower, although year-over-year core, just like in U.S. was sticky, much closer to 3%. But nonetheless, yields fell. And

tens minus boons were trading at the widest in two months at 170 basis points of difference and take it a step farther. If you look at boon yields very close to 2%, other than the first trading day of the year in January, they are at the low closing yield of the year. Now we're going to continue to follow all the dynamics in front of ADP and Jobs Friday, but there's no doubt geopolitical issues are having an effect. It just couldn't correlate specifically today with a flight to safety in treasuries. Kelly, back to you. Rick, thank you for that report. Rick Santelli. Let's get an update now on the situation unfolding in Israel, Megan Kisela in Washington. Megan? Kelly, we are continuing to monitor the unfolding conflict in the Middle East after the Israeli

military fended off an onslaught of missile attacks earlier today from Iran. Now we've been watching this footage all day of missiles lighting up the skies, but Israel's Iron Dome does appear to have intercepted at least some or most of those projectiles. And Israeli military spokesperson saying there had been a few hits to the center and areas in the south of the country, but that it does believe the attack is over and that it is not aware of any casualties from the missiles. It did also warn its citizens to stay sheltered unless absolutely necessary. Now, Iran did defend its actions as what it called legal, rational, and a legitimate response.

The attack had been anticipated, especially by the U.S., after Israel had launched widespread attacks in Lebanon. A few days earlier, Israel saying now that this attack will have consequences, although we don't have further details yet. On that, on the U.S. side, we know that President Biden and Vice President Kamala Harris did have two meetings with their national security team in the situation room, earlier today. They've been receiving regular updates on this. Biden says that he did direct the U.S. military to aid Israel's attacks against Iran and to shoot down missiles that targeted Israel. One U.S. official and one Jordanian official have also confirmed to NBC that Jordan allowed the U.S. to fly and shoot down missiles within their airspace. Now up next, we know that the White House briefing is just about to get going. The Pentagon will also be briefing within the next hour.

So, guys, we will continue to monitor all of these developments, and we will bring more to you, when we have it. Guys. All right, Megan, thank you, Megan, Casella, and Washington. Now, as we had to break, check on crude oil up around 3 percent, and again, off session highs. In fact, it's back below 70 a barrel now. After the earlier escalation of the conflict between Israel and Iran, we'll have more on the fallout for crude across the globe next. All right, welcome back to power launch. A quick check on the markets right now. You'll notice that the down industrials are currently down about, call it 25 to 30 points. It's pretty much flat on the session. At the lows, we were down 384 points, so we've gotten back roughly 350 points of

that loss in the Dow. The S&P is down by about two-thirds of a percent, 57-26, the level there. The tech heavier NASDAQ composite, 17,970, down 220 points, or one and a quarter percent. It is the underperformer the day. Now, oil is spiking more than 3 percent after Iran fired missiles at Israel. For more on where the futures market sees oil heading next, joining us now as Phil. Striebel, the chief market strategist over at Blue Line Futures. And Phil, let's take us through the price action that you saw today in oil again and what the futures curve looks like and what you think is next for those oil prices. Yeah, looking at oil. I mean, it was a deteriorating geopolitical situation in the Middle East that really sparked those fears of the possibility of a major expansion

in the hostilities that could disrupt some of these oil supplies. So what traders did was they scan through the assets that could appreciate from this type of volatile situation. We saw gold futures pushing back up to 2,700, a spike in the volatility index. Many people were picking up S&P 500 put options as well. So the opportunity, really, though, is in that crude oil market because you look at the Middle East effect, a shutdown of the Strait of Hormuz in a broadening escalation that takes off about 20 million barrels of crude oil per day in petroleum products. Also, look at how managed money is positioned. Just a week or two ago, we were net short on these positions here. Now we are starting to see those people unwind the managed money. So crude oil prices are pushing back up.

The volatile range we saw today was a test of the 50-day moving average. And we see an opportunity here to position for longer-term tailwinds, especially with stimulus from China and also the U.S. about to cut interest rates aggressively several more times. So let's put the trade on for us. What exactly are you trading and how are you doing it? So what we're looking at is the December micro crude. We like the micro because of the scaleability. It's $100 per every $1 move. We're looking at buying on a small dip back down at $68. The stop would be at $64. And we would target on a broadening escalation, those July highs up at $80. So you're risking $400 to potentially reward $1,200. And what exactly about that besides the fundamental aspects you laid out there? because if you look at the price and you look at the chart for crude,

it's been not exactly a positive momentum story. And some would argue that the path of least resistance is to the downside, given the price action today. I mean, crude is already off its best levels of the session. So it's the tailwinds. It's the China-related recovery. China's the number two consumer of crude oil. They've already done whatever it takes here to get their 2024 GDP growth target back in line.

They've affected monetary policy. the property sector and also the capital markets. We do have the U.S. with our interest rate cuts, could provide that stimulus, could get this economy back humming again. You also do have an OPEC meeting tomorrow. The current OPEC production is 26.6 million barrels. They're looking at more clarity on the supply situation. If you look at the month of September, they've had a net decrease of 480,000 barrels per day. And without Libya, they've still been curbing some of that production down 120,000. So it appears that many of these different OPEC countries are looking to push crude oil prices back up, and they'll do whatever it takes.

And one quick question to end on right now, oil always kind of leads us to energy stocks, as a matter of course. Are there certain parts of the energy complex that you think are better positioned than others? You know, we still like all your producers, your refiners and everyone else, especially in the transport section. So there's several different names that are out there that, you know, could gain exposure to things like Exxon, Mobile,

One of them that stands out. Marathon Petroleum are two that we really like. All right. Phil Strebele, Blue Line Futures with the trade on oil, given everything that's going on today. Thank you very much. We'll see you again soon. Kelly. And that's his angle. We'll dig deeper into the energy space after the break. Power Lunch will be right back. Welcome back to Power Lunch. Stocks are well off session lows when the doubt was down nearly 400 points. And tracking with that, oil is moving off its highs as well. So we're seeing some settling down in markets. Let's bring in John Kilduff founding partner with Again Capital and Pippa Stevens. who is here on set with us.

Great to have you both along. Pippa. Let's just start with a kind of a retracing of what we know, what's happened with crude this hour, and what are you hearing about further escalation now that Iran has struck Israel with missiles. So we initially saw prices spike.

We saw them get over that 5% level. They have since come back. But I think before talking about today's move, we have to look at where crude has been. It was down 16% last quarter. And so a lot of that is just simply reaction to how much we had fallen. Also, crude positioning had gotten negative for the first time on record.

That's going back to 2011. So the market was very short. And then both contracts tripped key levels, WTI on 70 and Brent on 75. So a lot of this was short covering. That's not to say, that's not to downplay today's escalation. Certainly important. But CIBC Private Wells, Rebecca Babin told me that if the market actually thought we'd see barrels coming off of the global economy, we would have been up $10 versus the $3.

We were up at the high. And so, of course, looking forward, the all-important question is how does Israel respond? So far, we have not seen any energy infrastructure targeted, even in Iran's attack. They did give a heads-up this time around. It was a less advanced warning than we saw back in April. But still, we did get advanced warning, and they didn't target any civilian infrastructure. They focused on military infrastructure, all of which she said points to the fact that they don't want this to escalate, meaning that how Israel responds, they really are the wild card now and what could determine the next price direction for oil.

John, why don't we bring you into the discussion here as well? If we talk about the ripple effects, PIPA laid out the price action pretty well. There wasn't, there was a dramatic response, but it wasn't like a panic in any way, shape, or form. What does it tell you about oil prices and their next leg if we couldn't even sustain the move on this, given a direct attack by Iran on Israel? Well, good to see you guys. Look, I think the big calculus change here is that Iran is not necessarily. necessarily the worry for this market that it has been or has represented, I'm going to say, for decades now. This is twice now where the Iranians have lobbed a volley of missiles at Israel, and they've all been waiting to see on this last one, but it seems like they've all been shot down again as well. And this is after Iran has seen several now of their top generals killed by Israeli actions,

And this is all they have. So I think it speaks volumes to Iran's lack of an appetite for any kind of region-wide war. They also don't want to risk their nuclear ambitions, which we know that the Israelis will go after probably one of the first things that there was any kind of meaningful attack on Israel by Iran. So I think at this point, the geopolitical risk premium as it relates to Iran, it's almost a fool's errand to get caught up in it and to think that prices will sustain. sustain themselves or to even game out that there will be a sort of region-wide conflict that

ends up with Israel against Iran. I think those days are officially stamped behind us. Pipa, I think as people also look at the oil action and what was happening going into this, I don't know if we'd say the market was oversupplied, but Saudi had just indicated some willingness to increase barrels, no matter if that kind of, if they wanted to defend market share. In other words, they were happy to take a lower price. So if we were super tight right now, if there was a concern that supplies couldn't keep up,

I think that'd be a different story. If anything, it's been the opposite. Yeah, and we've seen that there is a lot of spare capacity that could come back online. Remember, in total, OPEC and its allies still are withholding about, you know, 6 million barrels per day. And they've indicated they're going to start easing those supply cuts starting in December. And so there is capacity at the ready. Also, as Brian Sullivan has pointed out, U.S. production is now 13.3 million barrels per day. So we are a much larger portion of the market than we were in prior years, where maybe they're

would have been more of a price response. And then also to John's point, Saudi Arabia and Iran normalized relations back in March of 2023. And so it's not in Iran's best interest to target, to have a, you know, a wider regional conflict or do something as extreme as, you know, closing the Strait of Hormuz, because more than 80 percent of their exports come from petroleum products. And so it's in their best interest to keep that oil flowing, which is why some are saying, you know, they're not interested in this wider conflict.

They had to do something to save face, given the incursion into Lebanon, but they don't want this to escalate. All right, John, last word to you. Look, beyond the situation in the Middle East, overnight, we were down big. The manufacturing PMIs for Europe are just a basket case. I'm highly skeptical of the efforts of China to try to revive their economy. That's been a big problem for this market. We've got big problems for this oil market on the demand side. I don't see them curing themselves anytime soon. The path is lower. The speculative positioning is hugely to the short side. And I'm starting to think. thing for a good reason other than just to swing trades. So I think we're heading back lower.

That's a great point. All right. John Killedoff, Pippa Stevens. Thank you both very much. We've got a quick check on the markets for you as we head out to break. You can see right there the Dow is down 300 or down 37 points. It was down 384 at one point. We're going to drill down on some key movers power lunch returns after this break. Welcome back to Power Lunch. Dow's only down 22 points this hour as it's made up a lot of ground from its session lows. The S&P is still down about two thirds of a percent. The next. NASDAQ and Russell's are both kind of the worst performing in a tie there down a little bit more than 1%. Elsewhere, some stocks in the news were watching. Apple primarily, which is falling, as Barclays says, its checks are pointing toward weaker than expected global iPhone demand.

Apple shares are down 3% to 225. Tesla lower as well, only 1%, as well as Fargo names the stock and underweight on its fourth quarter tactical ideas list. And Cigna is falling sharply after announcing its CEO will retire, giving up about 9% today for SIG. down 12% year to date, and look at an intradate chart of Boeing. The stock starting the day lower, as the company will likely have to raise capital by selling stock. But turning higher along with defense stocks this afternoon, BA shares are up 1.5%. And Power Lunch will be right back. Welcome back to Power Lunch stocks well off their worst levels of the session following Iran's

missile attack on Israel. Now, for more on the market impact, let's bring in Sylvia Jablonski, the co-founder and CEO of Defiance ETFs. Sylvia, maybe let's just start first with your take on what the market price action has been today and what it tells you about what investors think of the growing Middle East conflict as we currently stand. Hi, Tom. Good afternoon.

Well, you know, today's market action reminds me a lot of what we saw when we heard about the Ukraine-Russia war, right? I think, you know, for decades and decades, it was more, it was pretty much smooth. sailing, you know, there's always things going on in the world, but over the last couple of years, these geopolitical threats have become realities. And when that happens, investors tend to panic, and we start seeing them, you know, fire sail a lot of their holdings and perhaps reallocate to different sectors of the market. So what we saw today was sort of just that, right? You saw the Mag 7 fall, a lot of the X-Mag, so, you know, the other stocks in the S&P 500, particularly those in the

defense area, start to gain some attention in action. You saw crypto fall, right? So it stays like this where we're reminded to stay diversified. And market psychology, you know, although the MAG7 are great, stable balance sheet companies, you know, investor psychology tends to go to defense stocks. It tends to go to things like uranium and, you know, right away kind of like spinning the wheels of where this will go if it escalates. Do you also think it's interesting that it seems as though the volatility response to some of these types of events has gradually trended towards dampening and dampening over the course of the last maybe 10. or 15 years, that the reaction just gets a little less intense each time around?

You know, I think it gets less intense each time around, and it's really hard to comment on what's going on in the Middle East because we don't, you know, the truth is we don't know the outcome. But, you know, a lot of times we get news that, you know, that the outcome could be more stable than we think. And in a lot of situations where we see these threats, you know, you kind of see stocks fall and then investors kind of come back into the market and benefit from buying on the dips and they diversify their portfolio and, you know, again, benefit from like the X-Mag and the defense names and oil and gas and uranium and then the market kind of chugs along, right? But it's a little different, right? I think this is a, you know, big conflict

in the Middle East. We also have a presidential election. So I do think that there will be some investor panic and sitting back in watching to see what happens until, you know, we get more facts about the future. But what that means for markets, if we, you know, take the politics outside of it, it probably just means diversification to XMAG and defense. I wonder if there's a little bit of opportunism sort of stock picking going on. When you see Intel as one of the biggest movers off the lows and think people are kind of waiting for it to, as Don would say, enter deep, deep value territory. Is that a name that you would also pounce on at these levels?

APA also had a big reversal. It's up about 5% now. Yeah, so I'm always, I mean, I've definitely talked with you guys about this, Kelly, too. And, you know, I'm a lover of buying on the dips, particularly when it comes to the AI names. We know that Intel has, you know, some U.S. government backing, some of the names like Palantir that are the defense AI plays. I mean, those are names that I'll definitely keep my eye on and, you know, kind of try to bump into. But then if you look at other names like micro strategy, for example, Broadcom, you know, just like the big AI stocks, I mean, they're going to pull back today as people kind of sell off. So those are great buy on the dip opportunities.

But again, I would say these are great days that remind us. that broadening your portfolio allocation is really smart because you kind of feel the pullbacks a lot less when things like this happened. Sylvia, we've just got a few moments left here. Another big intraday bounce off the lows has been Boeing, buyer or seller? Well, I think, you know, Boeing has certainly, you know,

had its dips, right? And I think long term things will get sorted out at Boeing. I think, you know, today, aerospace defense play, it's probably a name that I'll keep on my radar. But I would like to have seen things a little bit further along in the company in terms of what their plan is to fix their issues. All right. Sylvia Jablonski, thank you very much. We appreciate the thoughts. We'll see you soon. All right. Thanks very much for watching Power Lunch. Markets are well off their lows right now, Kelly.

And Dom, appreciate your time today. Closing bell starts right now.