A New Month, Another Bout of Stock Market Volatility

Key Takeaways

• Stocks slumped on Tuesday, making October the third consecutive month to start with a selloff.
• Oil prices surged and traditional safe havens such as gold and Treasurys advanced as market participants assessed the potential impact of escalating conflict in the Middle East and work stoppages at U.S. ports.
• Stocks ultimately rebounded from their August and September selloffs to finish each month at or near record highs.

It was déja vu on Wall Street Tuesday as stocks slumped at the start of a new month for the third consecutive time, as market participants assessed the escalation of conflict in the Middle East and the possible fallout of U.S. port strikes.

The S&P 500, which closed at a record high on Monday to wrap up a strong third quarter, fell 0.9% on Tuesday, while the tech-heavy Nasdaq Composite ended 1.5% lower.

Markets were rattled on Tuesday by a massive U.S. dockworker strike that threatens to throw a wrench in domestic supply chains and disrupt economic activity. Dockworkers at East Coast and Gulf Coast ports handling more than 68% of U.S. imports walked off the job Tuesday morning after the expiration of their contract with an industry group representing global shipping companies.

Stocks got another shock Tuesday afternoon when Iran launched a barrage of missiles at Israel, which came soon after Israel launched an incursion in Lebanon and following the killing last week of a Hezbollah leader. The escalations by Israel and Iran sent oil prices soaring more than 5% amid concerns that a deeper conflict could stem the flow of crude out of the Middle East, a major global supplier.

VIX Index Jumps on Turmoil

The CBOE Volatility Index (VIX) popped amid the tumult, jumping as much as 24%. Investors flocked to traditional safe havens like gold, which was up nearly 1% Tuesday afternoon, and Treasurys. 

Tuesday’s volatility resembled both September's and August's in certain ways. Early August’s selloff was sparked by worrisome jobs data and shifting global interest rates. Treasury yields and stocks declined this morning as markets digested data showing a continued hiring slowdown.

September’s early rout was led by tech stocks after chip giant Nvidia (NVDA) posted good but not perfect earnings, leading some investors to pull back from richly valued tech stocks. Tech led markets lower on Tuesday, with Nvidia off nearly 4%, and Apple (AAPL) and the PHLX Semiconductor Index (SOX) each down about 3%. 

Investors will be hoping Tuesday's slump is as short-lived as the last two. Stocks rebounded throughout both August and September to finish out each month at or near record highs.

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